Fresh off their junk bond buying spree, the Federal Reserve announced another bold move this morning: it was buying Trump Airlines out of bankruptcy. In a press conference, Jerome Powell stated the rationale, "Listen, the market got this one wrong. With just a bit more funding, this company could have had a very positive impact. We will right this wrong."
The deal is rumored to be in the $50 billion USD range. When pressed by reporters that the entity has been bankrupt since 1992, so why pay a $50 billion premium, Powell responded, "I mean, let's be honest, does it really matter? It's only money."
Rumors are that the deal frenzy will not stop. Dealbreaker is reporting that the Fed is currently also evaluating funding Enron and Pets.com, subject to diligence.
Morgan Stanley is advising the Federal Reserve. Drexel Burnham Lambert is advising Trump Airlines.
What you can learn from this fake news
The Federal Reserve has engaged in more aggressive buying of risky assets than ever, stepping out to even buy junk bond ETFs. This can help stabilize markets in the short-term, but presents a lot of potential issues. For example, who decides who gets bailed out? Why won't businesses take on even more debt in the future (if no problem, they make more money, if a problem, the US taxpayer gets the cost)?
Mohamed El-Erian warns the Fed’s pledge to support junk bonds could create ‘zombie companies’, CNBC
Jim Chanos Says He’s ‘Outraged’ Private Equity Giants Want Taxpayer Aid, Bloomberg