Fed is propping up companies it had warned banks not to touch
For years, the Federal Reserve warned that too many highly risky companies were engaging in fuzzy accounting that bumped up their earnings -- making it easier for them to obtain loans. The practice was driving up corporate debt to excessive and worrisome levels, regulators chastised.
But now, in its latest effort to keep credit flowing, the Fed has done a remarkable about-face. It essentially endorsed the dubious practice with a program that may serve to bail out some of America’s most leveraged companies.
The Fed move “rewards the worst abusers,” said Mark Carey, a former Fed official and co-president of GARP Risk Institute, the research arm of an association of risk managers. “People will see this as a backstop and in the future they will be encouraged to take on really high leverage.”
The reversal came in the Fed’s announcement last week to expand its Main Street Lending Program to allow more small and medium-sized businesses to qualify for as much as $600 billion in loans. That was widely applauded. But less noticed was a provision that allows companies that had used the widely-abused accounting techniques in the past to seek the loans.
https://www.msn.com/en-us/money/markets/fed-is-propping-up-companies-it-had-warned-banks-not-to-touch/ar-BB13DCnC?li=BBnbfcN
= new reply since forum marked as read
