Federal Reserve

Former Federal Reserve Official: Sorry About that Quantitative Easing

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A few days old but just came to my attention this morning, a Wall Street Journal apologia from former Federal Reserve worker Andrew Huszar (he "managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program") on how QE wasn't necessarily good for me or thee:

As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time….

The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."

Huszar was called in to help the Fed navigate new waters of economic intervention:

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.

It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash….

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

Huszar says he was unhappy with that result, and quit.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month…

And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.

Reason on quantitative easing.

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  1. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time….

    I seem to remember there were plenty of people here telling you just that. But who were we? Just a bunch of Christfag TeaBilbobagginsfuckers.

    1. Don’t forget us anarcho-free enterprise-individualists.

    2. I know. Its like the anti-progressives were… correct. Right. Not wrong.

    3. SHRIEKTARD ALERT CODE RED

    4. Well we should give Shrike credit for constantly reminding us how great wall Street is doing…while completely ignoring how bad the actual economy and employment is.

  2. He should commit the only honorable act left to him… immediately.

    1. I don’t know, he could probably redeem his honor by killing Nancy Pelosi, or at least Paul Krugman

  3. WHERE’S MY HAT TIP?

    1. Only Anal gets those these days.

  4. Oh, please please please let all the houses of cards fall at the same time. It’s so perfect. The exchange debacle has started the ball rolling and exposed a massive weakness in the administration. Now it’s time for more rats to flee the sinking ship. The sinking ship of cards, of course.

    1. If we can hit that bullseye the rest of the dominoes will fall like a house of cards, checkmate!

    2. Celebrate Schadenfreudenalia this year with friends, family, and your local politicians.

  5. Oh yeah? Well, it all started under BOOSH so it’s BOOSH’S fault because BOOSH!

  6. Just saw Money For Nothing Inside the Federal Reserve last night (Hugh stood me up). It was pretty interesting. The panel discussion with the director, an econ professor, a poli sci professor and a business professor was mostly predictable, but entertaining. Particularly interesting was the discussion about Janet Yellen (they all expect her to follow in Bernake’s footsteps, but maybe be firmer with regulations).

    1. I expect the federal presses to go to Ridiculous Speed.

      1. I expect the federal presses to go to Ridiculous Speed.

        They blew past Ridiculous Speed right into Ludicrous Speed years ago, I keep expecting our money to be printed in plaid.

        1. It has obviously been too long since I’ve seen the movie.

        2. Soon they will be reaching Incredible-Ain’t-It Speed.

          1. Until they hit the painted tunnel on the side of the mountain, which Road Runner Ben had zoomed through only moments before. Beep Beep!

  7. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash[…]

    Yes! It’s the roaring 20s all over again!

    (Except there were much fewer structural problems in the economy back in the 20s of Calvin Coolidge. We’re in the Era of Obama The Handsome, or FDR times 10.)

    The whole intention of money printing is not to cover the demand for money, which is the usual go-to explanation by the neo-classic economists and the other shysters. The point of money-printing is to pocket the profits obtained from the temporal dislocation (the artificial arbitrage) between the issuance of the new money and the realization that there are not enough savings to back it all up. The ones that end up holding the bag are us, the idiots who work and save and pay taxes.

    1. Thank you, OM, for that very concise summation of the core problem. IF money-printing ONLY covered the (properly and accurately measured) natural demand for money, that would probably help us avoid inflation: at some point, the dollars chasing goods and services would end up establishing a dollar value close to that which existed before the printing began. But under your scenario — which seems to accurately describe our situation — not so much.

  8. Fuck you Andrew Huszar; you’re nothing but a goddamned liar is what you are. Because you know full well that the real purpose behind Quantitative Easing forever is to keep interest rates at insanely low levels, so that our insane federal government can continue its insane levels of borrowing without our interest on the debt rising to insanely terrifying levels.

    1. Mike, that is certainly one of the prime purposes of QE ,but there is another one.

      Around half of $500BB annual QE spend goes to buying collateralized mortgage obligations. This is the “backdoor bailout” part of QE: the Fed is paying full boat for boxes of bad loans.

      1. There’s a reason the housing market is oddly floating in mid-air as far as pricing goes.

        All this investor purchasing going on right now? Would’ve happened years ago at far lower prices without all the bailouts.

  9. Easing

    Know it sounds funny,
    But I just can’t stand the wane.
    Stocks, I’m boosting you tomorrow.
    Seems to me polls
    You know I’ve done all I can.
    You see, I begged, stole,
    And I borrowed.

    Ooh, that’s why I’m easing,
    I’m easing ‘spite expert warnings.
    That’s why I’m easing.
    I’m easing ‘spite expert warnings.

    Why in the world
    Would anybody put chains on me?
    I’ve paid my dues to make it.
    Everybody wants me to be
    What they want me to be.
    I’m so happy when I try to fake it.
    Yo!

    Ooh, that’s why I’m easing,
    I’m easing ‘spite expert warnings.
    That’s why I’m easing.
    I’m easing ‘spite expert warnings.

    I wanna be high, so high.
    I wanna be free of knowing
    The things I do bring blight.
    I wanna be free,
    Just me, babe!

    That’s why I’m easing,
    I’m easing ‘spite expert warnings.
    That’s why I’m easing.
    I’m easing ‘spite expert warnings.

    Because I’m easing,
    Easing ‘spite expert warnings.
    Because I’m easing,
    Easing ‘spite expert warnings.

  10. Top. Men.

    1. Philosopher-Fucking-Kings.

    2. Actually, that was redundant. Philosopher FucKings.

  11. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time….

    The BEST.

    The BRIGHTEST.

  12. “Let’s not argue about who killed bankrupted who…”

  13. Please. This cannot be true. This week’s Economist contained not one, but three articles about how QE and similar measures saved us from a full-blown Depression, and that we need inflation to spur economic growth and avoid Deflation. Surely the Economist cannot be wrong!

  14. “I have bad news, Shirley. You might want to sit down.”

  15. I see misplaced gloating and schadenfreude, but, as usual, not a single policy idea, and sure as hell not a realistic one. Bernanke never claimed QE was the solution to our woes. He said on many occasions that actual economic policy is needed to stimulate sufficient demand in the economy. Why do you guys never talk about the fact that Congressional Republicans refuse to allow any legislation to address this and high unemployment? Why is it always this lame, cowardly “I’m a misanthropic asshole, and look, I’m right again!” bullshit?

    1. not a single policy idea

      To me, “End the Fed” is a policy idea.

      1. By realistic I mean the opposite of fucking insane.

        1. So, if I have this correct, you want to know why instead of offering ideas that you find insane, we instead always gloat about how what you thought was insane before turned out to be right? Get fucked, halfwit.

          1. WHY WON’T YOU OFFER IDEAS I AGREE WITH???

            /Well Poisoner

        2. Yes, going back to the kind of banking system we had that got us from “colonial backwater” to “global economic power” is fucking insane.

          1. You and I both know that the only reason the US became the economic powerhouse it did was due to the burgeoning federal presence augered by Lincoln and culminating with FDR’s benevolent vision. I mean, the country languished in stagnation during the late-eighteenth century, right? And the roaring twenties was capitalism run amock, and the thirties, its impecunious consequence. And other hoary, since-disproven chestnuts.

        3. How I know tony is a huge hack?

          He defends FED policies which enrich banks at the expense of the economic welfare of the people.

          Willing to sacrifice the fundamentals of his own political ideology to defend his TEAM without even blinking.

    2. Why do you guys never talk about the fact that Congressional Republicans refuse to allow any legislation to address this and high unemployment?

      Beg the question much?

      1. So you approve of the status quo?

        1. False dilemma much?

          1. Either you approve of the status quo or you must be in favor of some change to policy. Even if it’s cutting more taxes and deregulating everything. It’s a true dilemma. Or it would be if you guys thought it important to contribute to policy ideas instead of just being nihilistic goobers.

            1. Even if it’s cutting more taxes and deregulating everything.

              Congressional Republicans are preventing that?

              1. LOL. You should be ashamed. Talk about having one teed up for you.

            2. I know it’s a bit late and you’re so impervious to logic that it won’t do any good anyway but…

              WHY should we not just be nihilistic goobers? We’re all fucking Cassandra’s. We warned that excessive free money through the 90’s and 2000’s would create unsustainable asset bubbles and what happened, our warnings were ignored and then used as evidence that our policy prescriptions were the cause of those bubbles to the point that large swathes of the public somehow believes that government revenue and spending were cut to the bone before the latest asset bubble collapse.

              If we do offer any more policy prescriptions all you will do is claim they were implemented after the next bubble collapses.

              The fact is QE did not prevent a depression, it at best delayed it by masking the fact that asset valuations are massively inflated across the entire economy. Eventually, the fact that more debt than can ever be paid back has been sold will have to be realized and assets devalued appropriately.

              I’ll admit, this could happen stealithy in slow motion via inflation (20 years of double digit inflation should do it) but since prices climb faster than wages it will still feel like a depression to those living through it and this method of asset devaluation will hurt the poor and middle class much more than if you just whacked 40% off the value of assets across the board by having a full scale depression

    3. Look, look! Over there!

      Bernanke never claimed QE was the solution to our woes.

      Sure. But even his claims on what QE could do were wrong.

      And yes, many of us did have a policy idea. HANDS OFF…SELF CORRECTING.

      1. Not really. He claimed it would prevent slipping into recession but would only allow us to tread water, if I understand.

        Self-correcting is what happened in 2008. That’s not a solution, it’s a slogan.

        1. No. Even the Bear buy-out by JPM had heavy government influence, although not nearly the complete takeover that occurred in Sept/Oct 2008.

          Self-correcting? Egad. Not remotely.

  16. Why is it always this lame, cowardly “I’m a misanthropic asshole, and look, I’m right again!” bullshit?

    DERP. But we ARE right.

    And wishing for an alien invasion or some equivalent destructive event to stimulate demand does not exactly make you a Great Thinker.

    1. No you’re not. You’re literally not right about anything with respect to economic policy. You exist to be on the wrong side of every issue. For all I know, the aliens have invaded, and you are they.

      1. So your critique, just as bereft of any consequential criticism as the imaginary nihilists on this board that you describe, is that because we don’t wish to use the language and political apparati of interventionists and their hack boosters in the media and sycophants like yourself, we’ve no place at the table.

        Your advice if a wee bit self-serving, Tony. And yeah, whoever upstream suggested well poisoning is spot on. I’d add question-begging to your credentials. You’re a walking miasma of pissy attitude and worse logic.

  17. Rewarding financial institutions for rampant stupidity is not the way to a stable economy.

  18. You’re literally not right about anything with respect to economic policy.

    Uh huh.

    What do you suppose would happen if Jamie Dimon KNEW if he went to the Secretary of the Treasury on bended knee, saying, “HELP MEEEE! The shareholders are gonna lynch me for destroying their bank!” the SecTreas would sway, “Good!” and have him escorted from the building?

    1. You don’t understand. There’s no way the Treasury would turn down Jamie Dimon, or anyone with enough political clout managing a substantial pool of finance. So it’s not the Treasury’s fault, it’s not the Fed’s fault, it’s not the Bush’s fault for inaugurating these policies nor Obama’s for continuing them, it’s not Congress or the largely uncritical media, it’s the fault of libertarians and assorted detractors for failing to recognize those inevitable political failures and DOING SOMETHING ABOUT IT. Because only the capacity to INTERVENE is recognized as legitimate political action.

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