Watchdog Raises Questions Over Fed, Pentagon Emergency Aid Use
(Bloomberg) -- A bipartisan U.S. watchdog panel flagged that the Federal Reserve set aside its recommendation to stop buying corporate bonds, and criticized the Department of Defense’s response to an inquiry about an emergency loan.
The Congressional Oversight Commission, in charge of monitoring pandemic relief funds at the Treasury Department and Fed, highlighted that the central bank kept making corporate-debt purchases even after the panel unanimously recommended that it stop.
In a report issued Friday, the panel also called the Pentagon’s delay in responding to questions about a $700 million Treasury loan made in consultation with the Defense Department “inexcusable.”
The Fed has purchased an additional $158 million in corporate loans from the secondary market in the past two weeks, increasing its total amount to $13.4 billion from $13.2 billion, according to the report. But in mid-October, the commission had recommended that the liquidity facility cease making purchases.
The four members of the bipartisan panel -- who have otherwise frequently disagreed about the need for Fed lending -- were all in accord that market conditions had stabilized and that central bank intervention was no longer needed.
The report also said the Department of Defense has been “incomplete” in its response to questions posed in July about a $700 million loan made to trucking company YRC Worldwide Inc. The panel has questioned whether YRC is eligible for the money, which is intended for uses critical to national security.
The commission also raised concerns about whether YRC’s “precarious” financial situation could risk the loss of taxpayer money. The Kansas-based company, which ships electronics and supplies to military locations around the world, is at risk of bankruptcy because of a heavy pension burden and has been rated non-investment grade for over a decade, the panel said in July.
The commission is a bipartisan panel, with two Democrats -- Representative Donna Shalala and former Elizabeth Warren aide Bharat Ramamurti -- and two Republicans -- Senator Pat Toomey and Representative French Hill. It has operated without a chairman to serve as a tiebreaker since it was formed in March; House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell were supposed to jointly appoint a leader.
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