The Fed Is Buying E.T.F.s Today

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The Fed begins buying $750 billion in corporate bonds

Today is a big day for the central bank, which will buy corporate bonds for the first time in its history. Its corporate bond-buying program was announced in March, as part of a package of pandemic rescue measures.

The Fed will start with bond E.T.F.s. Most purchases will be in funds that hold investment-grade debt, the central bank said, but it will dabble in junk bonds. Direct purchases of corporate debt will follow.

• The program, which is managed by BlackRock, will take $75 billion in equity from the Treasury and leverage it 10-to-1, giving it up to $750 billion to play with.

It has already had the desired effect, as the mere promise of such a large and determined buyer reopened credit markets frozen by fear. Remember when companies frantically drew down bank credit lines to bolster their balance sheets when the coronavirus first hit? Some companies are now issuing cheaper long-term debt to repay this revolving credit: Barron’s estimates that some $14 billion has been repaid this way.

• PayPal issued $4 billion in bonds yesterday, which will be used to repay $3 billion that it borrowed from its bank credit line in March.

• The tobacco company Altria issued $2 billion in bonds last week to repay some of the $3 billion it tapped from its credit facility in March.

• The packaged food producer Mondelez issued $1.5 billion in bonds last week to repay the $1 billion it borrowed in March.

This creates skewed incentives, some investors worry. “We are all government-sponsored enterprises now,” Scott Minerd of Guggenheim Investments writes in his latest investor letter. “At the margin some questionable credits will not only have lower risk of default, but they will also have lower risk of downgrade and pay lower rates of interest.”

• Some futures traders are betting that the Fed could push its benchmark interest rate below zero this year, which would goose the bond markets even more.

“I will be on the line with everyone else,” Mr. Musk tweeted. “If anyone is arrested, I ask that it only be me.” Possible punishments for defying the order include fines of up to $1,000 a day or up to 90 days in jail.

There’s a lot at stake:

• The Fremont plant is Tesla’s main factory.

• The company had been in talks with county officials about reopening the factory on May 18, the same day that Tesla rivals like G.M. and Ford are set to reopen.

• Mr. Musk sued Alameda County over the weekend and threatened to move Tesla’s operations to Texas or Nevada.

Government officials are split:

• Though Gov. Gavin Newsom has allowed manufacturing to resume in California, he has expressed support for local officials seeking to extend lockdown orders.

• Treasury Secretary Steven Mnuchin sided with Mr. Musk, telling CNBC: “He’s one of the biggest employers and manufacturers in California, and California should prioritize doing whatever they need to do to solve those health issues so that he can open quickly and safely.”

Banks may be elbowed aside in next rescue efforts

After the first wave of coronavirus rescue programs stumbled, some lawmakers are considering financial help lines that sidestep lenders entirely, The Times reports.

Lawmakers are considering using I.R.S. records and payroll processors to distribute money, Emily Flitter and Emily Cochrane write.

• Some Senate Democrats want the Fed to create accounts for every American, similar to how Social Security numbers are assigned, to distribute future aid through the central bank.

• Treasury Secretary Steven Mnuchin said he was not worried about spending $3 trillion on coronavirus relief efforts because of low U.S. interest rates.

White Collar Watch: Does Adam Neumann have a case?

Peter J. Henning is a professor at the Wayne State University law school, and previously served in the enforcement division of the S.E.C. and in the fraud section of the U.S. Justice Department. Here, he considers whether Adam Neumann, the WeWork co-founder, can convince a judge that SoftBank owes him $1 billion.

Adam Neumann sued SoftBank in the Delaware Chancery Court, claiming a breach of contract. He accused the Japanese investment giant of improperly backing out of a deal to buy up to $3 billion in WeWork stock, including around $1 billion that he was eligible to sell.

SoftBank called the suit “meritless” and said it had “no obligation” to buy the shares. What are the chances of Mr. Neumann convincing the court otherwise?

The dispute centers on an October agreement in which SoftBank rescued WeWork with a package of loans and equity investments. In his lawsuit, Mr. Neumann accused SoftBank, which by that point had control of WeWork’s board, of “secretly taking actions to undermine” the agreement.

The coronavirus outbreak has hit both WeWork and SoftBank hard. SoftBank announced in April that it was ending its offer to buy WeWork shares, prompting a lawsuit from a special committee of the WeWork board. Mr. Neumann alleged that SoftBank’s deteriorating finances “no doubt influenced its decision to renege on its obligations to WeWork.”

The Chancery Court tends to enforce contracts like the “master transaction agreement” SoftBank made with WeWork, which would bode well for Mr. Neumann. The court also often enforces claims involving tender offers, like the one at the center of Mr. Neumann’s case. He is seeking to enforce an agreement that touches on basic contract rights, and previous opinions from the court are helpful to him.

If Mr. Neumann wins in the Chancery Court, we can expect SoftBank to appeal. Helping SoftBank’s case is an investigation by New York’s attorney general into WeWork’s management practices, which was opened after the master transaction agreement was signed. If that inquiry uncovers misconduct at WeWork, or by Mr. Neumann himself, it may be enough to convince a court that the agreement isn’t enforceable.

Bill Gates will spend “a lot more” to stop the coronavirus

The billionaire told The Wall Street Journal that he felt “terrible” about not doing more to help prepare the world for a pandemic like Covid-19, and will use his fortune to help stop it.

He rang alarm bells about a pandemic five years ago, but said he wasn’t able to get enough traction. But he acknowledges the limits of his own approach: “It’s really a governmental thing, just like the defense budget is there to help with an outbreak of war.”

His family’s foundation has already committed $305 million. Before the pandemic is over, he said, “we will end up spending a lot more.”