by Wolf Richter, Wolf Street:

Indirectly via its Special Purpose Vehicles and its Primary Dealers, the Fed can buy even old bicycles, as long as taxpayers take the losses.

With its announcement this morning, the Fed expanded its three fundamental mechanisms in which it is once again bailing out the biggest risk takers, over-leveraged companies, hedge funds, mortgage REITs, and PE firms; wiping out cash-flows for crash-averse savers and holders of Treasury securities; and creating special opportunities for well-connected individuals who have access to the Fed’s programs. And let’s get this straight: None of the programs are going to fix the economy.

These bailout programs fall into three mechanisms:

1. Fed buys assets directly. Until this morning, this was limited to Treasury securities, agency debt, and residential MBS backed by Ginnie Mae (US government agency) and the GSEs, Freddie Mac and Fannie Mae. This morning, the Fed added agency-backed commercial mortgage-backed securities (CMBS) to the list.

2. Fed sets up special purpose vehicles (SPV) and lends to the SPVs which then buy assets or lend. These SPVs can buy assets the Fed is not allowed to buy and they can lend to entities and individuals to buy certain assets. Under the Federal Reserve Act, these SPVs require taxpayer backing from the Treasury Department to protect the Fed from losses.

3. The Fed lends to its 24 Primary Dealers against collateral, and that collateral can be anything the Fed decides, including now stocks – and in the end finally old bicycles.

The entire alphabet soup of new programs will take a while to get set up and get started. And since they won’t fix the economy and its underlying problems, they might not work as well in accomplishing their goals – making the wealthy wealthier – as they did during the Financial Crisis. So we’ll have to see how this works out.

New Today, March 23.

This morning, March 23, the Fed announced a slew of programs and expansions of existing programs:

QE unlimited: The purchases of Treasury securities and MBS will be unlimited (previously the limit had been $500 billion of Treasury securities and $200 billion of MBS). For this week is said it would buy $375 billion in Treasury securities and $250 billion in MBS.

QE CMBS: QE purchases will now include CMBS but only those that are backed by the GSEs and Ginnie Mae.

PMCCF to lend to large companies. Via the Primary Market Corporate Credit Facility, the Fed will lend to a Special Purpose Vehicle (SPV) that then provides bridge loans with maturities of four years to large investment-grade corporations. They can defer interest and principal payments for six months, which is extendable at the Fed’s discretion. With this, the Fed is trying to kill the pricing of risk of overleveraged companies and protect and make whole the shareholders and creditors of these companies

SMCCF to buy corporate bonds and US-listed bond ETFs. Under the Secondary Market Corporate Credit Facility, the Fed lends to an SPV to buy existing investment-grade corporate bonds and corporate-bond ETFs.

The insidious TALF is baaaaack. The Fed concocted this Term Asset-Backed Securities Lending Facility during the prior Financial Crisis. Under this program, the Fed lends money to an SPV which lends on a non-recourse basis to entities and well-connected individuals so that they can buy recently issued asset-backed securities (ABS) that they post as collateral.

“Non-recourse” means that if the asset blows up, the individual can just walk away from it unharmed and let the SPV deal with the debris.

These ABS can be backed by credit card loans, auto loans, student loans, equipment loans, floorplan loans, insurance premium finance loans, some loans guaranteed by the Small Business Administration (SBA), and eligible loans on receivables. The loan amounts will be “equal to the market value of the ABS less a haircut and will be secured at all times by the ABS,” the Fed says.

A little history on TALF: At the end of 2010, under orders from Congress, the Fed released data on over 21,000 transactions it performed during the Financial Crisis, which revealed among many other outrageous acts, that the Fed lent to well-connected individuals and all kinds of hedge funds and others under its TALF program so that they would buy certain assets, such as these consumer loan ABS, drive up their prices, sell them to pension funds and others later for a huge profit, and pay back the loans to the Fed.

These well-connected individuals included John A. Paulson, Michael Dell, Christy K. Mack (wife of former Morgan Stanley CEO John Mack), Kendrick R. Wilson III (former Goldman executive and top aide to Hank Paulson Jr.), H. Wayne Huizenga (founder of AutoNation and Waste Management), Jonathan S. Sobel (head of Goldman’s mortgage department), etc. Some very wealthy people made a lot of money off the Fed’s bailout programs even as workers and the economy was in deep trouble.

Expanded MMLF to municipal demand notes and CDs. This Money Market Mutual Fund Liquidity Facility was announced last week (see way below). Via SPVs, it buys short-term corporate paper that normally is bought by money market funds. Companies borrow short term from investors by selling corporate paper to money market mutual funds. This short-term corporate debt is now perceived as riskier, including the rising risk of defaults, and these money market funds have come under stress, much like their long-term brethren, regular corporate bond funds.

Today, the Fed expanded the securities that its SPVs are buying to include municipal variable rate demand notes (VRDNs) and bank certificates of deposit.

Expands CPFF to municipal paper. Last week the Fed announced the Commercial Paper Funding Facility, where the Fed lends to an SPV that then buys corporate commercial paper. Today the Fed expanded CPFF to where the SPV can buy “high-quality,” tax-exempt commercial paper issued by municipal borrowers.

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