Unsanitized: The COVID-19 Report for July 31, 2020

Fed's Emergency Lending Programs Are Killing the Planet
Also still no deal on a relief bill

 

The oil sector is too unstable and too environmentally dangerous to be a
focus of Federal Reserve bailouts. (Stanton Sharpe/SOPA/Sipa via AP)

First Response

Second-quarter earnings are rolling in, and while the big winner is Big
Tech, the big loser is Big Oil
.
Exxon Mobil suffered two straight quarterly losses for the first time in
at least 22 years, and Chevron lost over $8 billion in the last quarter.
Royal Dutch Shell, ConocoPhillips, and Total posted losses as well. All
of these companies are trading at their lowest levels in decades.

This seems like an inopportune moment to be investing in oil and gas
companies, or lending to them. But not if you're the Federal Reserve
and you're easily influenced by petroleum lobbyists and oil-friendly
politicians. We have told the story

of the Fed changing the terms of the Main Street Lending Program, at the
behest of these oil interests. But three researchers at the Center for
American Progress put this all together today, in a report

that expands on how the nation's central bank is increasing climate
risk and financial instability by bailing out the oil sector.

Not only is it morally unconscionable to facilitate the burning of the
planet by catering to the oil industry, it's financially stupid. The
industry's crash has been years in the making: oil and gas stocks have
dropped 72 percent since 2014, while the S&P 500 has gone up 76 percent.
Since that time, companies have sacked 50,000 workers, bringing down the
workforce by one-quarter. Nearly every year in the last decade, energy
firms have been the top issuers of junk-bond debt, with $72 billion
outstanding as of March. There have been over 200 bankruptcies since
2016. There's not much of an industry to save, and inducing private
investment into the sector just magnifies the risk.

Read all of our Unsanitized reports here

Click to Support The American Prospect

Compound that with the imperative to green the energy mix, and the Fed
is directly and indirectly pouring money into dead companies that will
become vestigial organs if we have any chance of maintaining habitable
life on Earth. You don't want banks holding mountains of soon-to-be
stranded assets. The Fed is supposed to protect the stability of the
financial system; nursing oil and gas firms to health is the exact
opposite approach.

CAP's Gregg Gelzinis made the case for the Fed to restrict fossil fuel
investment last November, in a report that I covered
.
Now, Gelzinis, Michael Madowitz, and Divya Vijay explain how the Fed has
bent over backwards to rescue the industry from crisis.

The oil industry lobby, oil-state Sen. Ted Cruz (R-TX), and Energy
Secretary and former energy lobbyist Dan Brouilette asked for five
changes in the Main Street Lending Program: Allowing more indebted
companies to get loans, letting them using the loan funds to refinance
existing debt, increasing the loan size above, no commitment to using
the money for COVID-19 crisis measures, and no commitment to maintaining
employee headcounts. The Fed gave them all five, three weeks after
laying out the initial terms to the MSLP in April.

That help is for now theoretical, because the MSLP has only made one
loan in total so far. But the Fed's corporate bond-buying program is
also disproportionately targeted to the energy sector
.
As of July 10, 8 percent of the Fed's $9.5 billion in bond purchases
are in energy. The industry is now pushing for changes to rules in the
corporate bond facility that would make more junk-rated oil companies
eligible for bond purchases. The Fed's already breaking those rules by
purchasing ETFs that have junk-bond debt embedded in them, another
back-door bailout of oil and gas.

Certainly the Fed has benefited other types of businesses. (Cayman
Islands hedge funds
,
for example.) But bailing out the oil industry is particularly
egregious, and it should give pause to anyone cheerleading about the
Fed's interventions. Not only does this reward investor speculators
and options-loaded oil executives, it "enables oil and gas companies
to continue to fuel the climate crisis, which is a clear threat to
financial stability," the authors write.

The report includes five recommendations for the Fed, most prominently
cutting off the oil industry from emergency lending and moving them
through the bankruptcy process. Other activists are sounding this alarm.
Several dozen groups have written to Fed chair Jerome Powell
,
urging them to offload this financial and climate risk from oil and gas.
A separate group called Stop the Money Pipeline
is asking for the same.

The Fed's position is most certainly not neutral, and in this case it
threatens planetary survival and financial catastrophe. It should at the
least disclose its emissions portfolio and climate risk, and plan to
immediately divest of them.

Support Independent, Fact-Checked Journalism

Odds and Sods

My book Monopolized
was
reviewed in the Christian Science Monitor

alongside Zephyr Teachout's excellent companion Break 'Em Up
.

I was on Brad Friedman's BradCast talking about the Big Tech hearings
and the coronavirus relief bill, and Monopolized. Listen here
.

I was on Background Briefing with Ian Masters talking about the Big Tech
hearings and my book. Listen here
.

You can find all of our coronavirus coverage at prospect.org/coronavirus
. And reach out to me via email
with tips, comments, and perspectives.

We Depend on Your Donations

Whole Lotta Nothing

Today is the official expiration date of the $600/week unemployment
boost, although functionally speaking it has already expired. Tomorrow
is rent and mortgage day, although that eviction moratorium has already
expired. And there is essentially nothing going on with negotiations on
extending these and all the other necessary measures in a coronavirus
response bill. We've heard some backchannel communications that the
White House would drop the liability shield

(though would Mitch McConnell put that bill on the floor?). McConnell
isn't even in the room negotiating with Democrats. The Senate left
town

after passing a procedural advance on a shell bill that literally has
nothing in it, a fitting metaphor for this process.

This is not something observers of this democracy anticipate. They
figure self-interest and political survival does motivate incumbents,
especially in a time of crisis. But two things on that. First, the
constituency, especially on the Republican side, has narrowed to stock
market investors and large corporations; those two have already been
showered with sufficient funds and aren't suffering. And while the
conventional wisdom argued that incumbents fight for incumbency,
there's no roadmap for when the incumbent believes they've already
lost
.
Trump's half-heartedly running on nullifying the election results, and
Senate Republicans are largely positioning for the minority already.

Democrats have become the majority party in the minority, looking to
save the economy from ruin, which would paradoxically help the
president. But Trump doesn't have interest in it
.
Improving his political position, in this case, would mean conceding an
argument. And that can never happen.

Days Without a Bailout Oversight Chair

126
.
See "First Response!"

We Can't Do This Without You

Today I Learned

* Amazon's blowout earnings
were
in line with the rest of Big Tech, and showed how the pandemic is
working to increase their power. (CNBC)

* The U.S. has now purchased 200 million doses of coronavirus vaccine,
the latest 100 million in a deal with Sanofi

and GlaxoSmithKline. (Reuters)

* Jared Kushner begged off his plan to deliver PPE nationwide because it
would mostly help blue states
.
It's who they are. (Vanity Fair)

* You thought the U.S. GDP statistics were bad, in the Eurozone the
second quarter dropped by 40 percent
.
(Wall Street Journal)

* COVID is causing heart disease
,
too. (JAMA)

* Iowa teachers are writing their own obituaries

and sending them to Gov. Kim Reynolds (R) in a school reopening protest.
(The Hill)

* Cargo strapped into passenger seats

on major airlines to make money. (Axios)

**Click the social links below to share this newsletter**

 

[link removed]

 

[link removed]

 

[link removed]

 

[link removed]

 

[link removed]

 

[link removed]

YOUR TAX DEDUCTIBLE DONATION SUPPORTS INDEPENDENT JOURNALISM

Copyright (C) 2020 The American Prospect. All rights reserved.
_________________

Sent to [email protected]

Unsubscribe:
[link removed]

The American Prospect, Inc., 1225 I Street NW, Suite 600, Washington, DC xxxxxx, United States