Emergency Federal Reserve actions don’t always repeat — but they certainly rhyme. Back in April I highlighted in this space that New York City was waiting in line during the pandemic to receive whatever assistance it might cajole from the Federal Reserve.

On Tuesday, Bloomberg reported that the Fed has agreed to purchase $451 million in notes floated by New York’s Metropolitan Transportation Authority, operator of the city’s subways and commuter trains, at an effective interest rate of 1.92%. Meanwhile Wall Street banks who need to weigh market risk had bid on these three year revenue anticipation instruments at a rate of 2.79%.

The MTA’s ultimate czar, Governor Andrew Cuomo, will no doubt express his thanks via Zoom to the Fed’s chairman, Jerome Powell. For the MTA, one of the world’s most indebted and mismanaged transit systems even in boom times, now joins a distinguished club of two that includes the near bankrupt State of Illinois in accessing the Fed’s emergency municipal facility.

Ranked one notch above junk by the ratings agencies, the Prairie State issued $1.2 billion in one-year notes in June, also at a better than market Fed rate. As the editors of The Wall Street noted yesterday, “the Fed has leapt over guardrails in the pandemic — to the extent that it is acting almost as an alternative fiscal agency.” It’s pretty clear the Fed will pick the winners in this debtors lottery based on their political clout.

As we pointed out in April, the central bank was barely a year old when, in 1914, President Wilson’s treasury secretary, William McAdoo, approved the first bailout of New York City. At the central bank’s inception the Treasury chief was the Chairman of the Fed. McAdoo permitted a Wall Street syndicate of banks to market and absorb a NYC issue of $100 million, also in three year notes, and count those securities as capital reserves on their balance sheets.

The birth of the “too big to fail” doctrine in American finance is how economist William Silber termed this. The irony is that Secretary McAdoo could probably provide the MTA with some expert advice if he were around today. Most residents of the metropolitan area would be surprised to learn he was responsible for the construction of what is today the PATH rail system, operated by the Port Authority, which connects Manhattan and New Jersey.

It turns out that efforts to bore tunnels under the Hudson proved unsuccessful until, in 1902, McAdoo, a lawyer from Chattanooga, assumed the challenge. His Hudson & Manhattan Railroad Company raised from Wall Street something like $70 million (roughly $1 billion today) in private capital, pioneered new drilling techniques that created 14 miles of underground carriageway, and established an infrastructure and a passenger service judged at the time as superior to that of the NYC subways. The network was completed in 1912, and for generations of metropolitan commuters, the H&M was simply known as “the Tubes”.

McAdoo could also teach a thing or two about customer service to today’s flailing MTA leadership. In a 1910 Harvard Business School lecture, McAdoo argued that the “hostility of the public to corporations, especially transportation corporations, so much in evidence during the past few years, is the cumulative effect of years of indifference, oftentimes contemptuous, on the part of corporate managers to the interests and just grievances of the public.”

Sound advice, indeed, to our governor and his collaborators, and those in Washington who would bail them out. When the pandemic lifts, perhaps the governor can take the chairman on a subway tour. The next stop could well be the twilight zone.

________

Mr. Atkinson, a contributing editor of the Sun, covers the 20th Century.

Drawing by Elliott Banfield, courtesy of the artist.