Say whaaat? Federal Reserve Currency Swaps? The swaps are important: the swaps are socialism for the financial sector.

The swaps work something like this. During times of financial stress, banks which lend to each other overnight and for other short term periods will be hesitant to roll over loans when they are unsure as to whether the banks they lend to, will be able to pay back the loans. Let’s say a bank in the United Kingdom (UK) borrows U.S. dollars to make U.S. investments. The longer term investments are funded with the shorter term loans: short term borrowing costs are lower than the expected earnings on the longer term investments and the borrower-investor earns the difference between the two rates. If the U.S. lender refuses to rollover the short term loans and the UK borrower is unable to find other reasonably priced loans, the UK borrower will need to sell assets, along with other investors into a falling market, in order to repay their loans. Selling into a distressed market, the banks will suffer losses.

This, all because the UK banks were unable to replace their short term private market funding, or at least unable to do so at a reasonable price. This is bad for U.S. banks because in our hypothetical, U.S. banks will be at risk of losses on their U.K. loans. So to avoid all of this, the Federal Reserve sets up currency swaps with other national central banks. In our example, the Federal Reserve (FED) will credit the Bank of England’s account at the Federal Reserve with newly created dollars. In return, the Bank of England, the U.K. central bank, will credit the Federal Reserve’s account at the Bank of England with an equivalent amount of newly created English Pounds. Later, funds utilized from these accounts will be repaid with interest and the banks will close out their positions.

Meanwhile, with access to U.S. dollars, the Bank of London can then lend these dollars to UK institutions which lost their private market dollar funding which will then enable the U.K. banks to pay their obligations to U.S. banks: UK banks will avoid default on their loans from U.S. banks; U.S. banks will avoid loan losses on the avoided defaults.

It is government intervention, via the Federal Reserve, designed to prevent bank failures which would otherwise occur under free market conditions: socialism for the financial sector. We should not necessarily oppose this. Government intervention is necessary to stabilize the wildly unstable financial and economic conditions which prevail in private market capitalist economies. Capitalism is a highly dynamic system.

What we should oppose is the benefits from this government intervention are not equitably distributed across society: unless the argument is avoidance of financial collapse and its dire consequences is reward enough for the working classes. But the truth is, during this pandemic, the rich have become richer, while the poor have become more poor. Certainly the benefits of government intervention can be more equitably distributed.

So far the Federal government has spent less than $300 billion on supplemental unemployment insurance while $3 trillion, minus a portion directed towards small and medium sized businesses under various programs, has been pumped into the financial markets. Admittedly, the $3 trillion is in the form of loans or asset purchases, so there is an exchange of value, but still, $3 trillion compared to $300 billion?

Meanwhile Congress can’t come to terms on extended supplemental unemployment benefits which leave the unemployed struggling on weekly benefits which nationally average $333: benefits which vary broadly from state to state. Hunger exists and evictions are pending. The people will only get what the people demand, but the people are rather distracted battling each other. We blindly march on not paying attention to the largely managed flow of funds which disproportionately avoid those in the lower layers of the economic hierarchy. Meanwhile, those within these lower economic layers battle among themselves, each blaming the other for their own demise.

A takeaway from all of this is that the free market is a myth. The international economy is a highly managed system and it is not being managed for the benefit of the working classes. While your wages are determined by the free market, much wealth and income is being created at the top through central bank interventions which are unrelated to the market, merit, or other attributes commonly attributed to the capitalist economies.

The wrong battles are being fought. Central bank currency swaps are discrete measures utilized to avoid legitimate “too big to fail” concerns, but basically amount to socialism for the financial sector. Meanwhile the working classes continue to be subject to the dictates of the “free market” system. Working class members on both the Right and the Left ought to be able to unite to ensure they receive an equitable distribution of the benefits achieved through Federal Reserve actions which at the moment mostly benefit the upper economic classes.

None of this is to imply that we need to hate rich people, those on Wall Street, or others in the financial sector–that is ridiculous. People are people and are subject to the frailties of our humanity and bad ideology. Hate should always be avoided; it achieves nothing good. Only love, respect, and truth will change the world. We need not have enemies. We do, however, need to express our views in a knowledgeable and civil manner and part of this is for the working classes to recognize that the power of government is currently being utilized by the upper economic classes to their benefit, without just compensation to the working classes. The working classes need to unite, change the political narrative, and exercise their democratic votes in a manner which makes the system work for themselves in an equitable and just manner.