When Daddy and Mommy Fight
The Congressional Oversight Committee met on September 17th. The topic of discussion: the Fed’s Municipal Liquidity Facility.
As readers of this space know, I’ve been researching and organizing around the idea of using the MLF as a source of school funding revenue along with an amazing movement that ACRE’s calling ‘progressive revenue’.
The hearing gives a great look at talking points on two sides of this strategy. The hearing is also kind of fun to analyze (I livetweeted my reactions as I listened).
Overall, what I found is that there are two interpretations of the MLF: what it is, what it’s for, what it can do. To give the whole dry affair some psychoanalytic pizzazz, I’ll call one side Mom and the other side Dad.
It’s super gendered and normy, but so was the hearing. Older white men spoke in paternalistic tones about how state and local governments have to suck it up and compete on free markets (Pat Toomey, eg) and a nice old caring lady asked how we can help support local governments and provide for them in this difficult moment (Donna Shalala).
Dad
Dad’s position on the MLF is that ‘municipal liquidity’ means backstopping municipal markets so that local and state governments can issue bonds in the private sector. The facility is a safety net for the markets.
Dad’s a straightforward neoliberal: we’ve got to save the markets. If we save the markets, we save those whom the markets serve. Generally, markets provide the best prices, freedom, and get government out of the way.
To Dad, there’s no difference between backstopping muni markets and providing municipal liquidity.
And it has worked very well.
Dad points to the bad shape that muni markets were in during the initial shutdowns in March, the fast announcement of the MLF, and the quick recovery of that market. Dad also talks about how one state government got a great loan for $300m at 1.92%. Wow!
Dad’s not concerned about the eligibility criteria, interest rates, or short timelines to pay down the MLF loans because these barriers to entry encourage muni market activity. With characteristic free market mysticism, Dad thinks the Fed created this facility precisely so it wouldn’t be used.
Also, check out how few government entities even needed the MLF. Surely, says Dad, this is evidence that it’s working since those entities must be going to the muni markets for their financing. Since the facility has worked so well, Dad thinks it should be wound down soon.
Plus, adds Dad, we can’t be seen as providing credit to local governments with bad balance sheets. They wouldn’t deserve it! That’s just a bad idea. Any support should be fiscal in nature. Government, if it exists (which btw it shouldn’t says Dad), should be more like markets and serve markets and make markets better because markets.
The guy who’s overseeing the MLF for the Fed articulates this position. It’s pretty surprising given Mom’s take on all this.
Mom
In sharp contrast to Dad, Mom thinks that municipal liquidity means what it says: providing liquidity support to local and state governments hit hard by the crisis. Doing so is in the Fed’s mandate and needed in the current moment. The Fed created the MLF for this purpose and is neglecting that purpose.
Mom’s worried that whole sectors of the economy are drying up. Tax revenues from these sector are drying up. Government budgets are contracting, leading to fewer and worse services that take care of the US working class (which, we should add, is disproportionately nonwhite).
Furthermore, state and local governments hire tons of people (again, lots of BIPOC). As their revenues dry up people lose their jobs. Everything gets worse, Mom says.
Which makes the punitive barriers to entry for the MLF all the more awful. Why would the Fed say it’s going to help state and local governments and make it impossible for those governments to get the help?
Mom says there’s clearly a double standard here. Private firms get much lower interest rates. Chevron gets a .9% loan, while Wisconsin has to settle for triple that?
To Mom, the Fed should ramp this program up, lower the interest rates, extend the limits on repayment. Our local and state governments need support now and will need it in the future. Let’s actually take care of these governments rather than throwing them to the wolves.
The Grant/Bond Bind
One of the things that came up in the meeting—something about which Mom and Dad apparently aren’t on the same page—is the availability of grants for states and local governments. Those grants would typically come in the form of fiscal relief from Congress. The CARES act is a good example of this.
But Congress is as good as out of session, with Mitch McConnell concerned with approving conservative judges more than passing fiscal packages. Many Republicans even made the argument, without evidence, that workers wouldn’t want to go back to work if Congress kept providing support. They proposed something paltry and Democrats rejected it. No relief package is forthcoming.
On this issue, it’s like Mom and Dad are divorced and giving the kids the runaround when it comes to basic stuff. You ask Dad for dinner and he says “make it yourself, ask your mother, order from a restaurant, get a job to make the money.” Then you go to Mom and she says, “I can’t honey, sorry, it’s your Dad’s responsibility tonight.”
There’s clearly a grant/bond bind. Congress should be providing grants through fiscal relief, but it’s not. State and local governments go to the Fed for bonds but the Fed, who offers these bonds, makes it really hard to get that help, telling them “go ask for fiscal relief.”
The time is ripe to push on this situation. Given the moment and the extent to which none of these suits, I imagine, are accustomed to direct organizing in their direction I think we could get results and win for Mom’s side.