The Age of Easy Money

QE is "the greatest backdoor Wall Street bailout of all time."

This ended up being a very good documentary, despite the extended appearance of disingenuous Fed tool Neel Kashkari. I could fill a book with what I was yelling at the TV for two hours (to the annoyance of others). My notes will work their way into paid posts here for some time to come.

Note that in the documentary, Neel Kashkari repeatedly claims to care about poor people and workers. There is no mention that Kashkari not long ago repeatedly called for a higher-cost of living¹.

Also, if you remember, Neel cares so much for workers that he fired anyone who wouldn’t take an experimental vaccine:

Anyway, it was good to see Frontline focused mostly on people like Andrew Huszar (who managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program in 2009-2010), Chris Leonard, and Tom Hoenig. Moral hazards like Krugman, Summers and Liesman have but fleeting appearances, and I believe the entire two hours was Sorkin free.

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Andrew Huszar: Confessions of a Quantitative Easer (2013)

I can only say: I'm sorry, America. 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…

In its almost 100-year history, the Fed had never bought one mortgage bond². 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…

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.

From the trenches, several other Fed managers also began voicing the concern that QE wasn't working as planned. Our warnings fell on deaf ears. In the past, Fed leaders—even if they ultimately erred—would have worried obsessively about the costs versus the benefits of any major initiative. Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers. Sorry, U.S. taxpayer…

You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector…

Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.

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Clown World.

1.

2. Today the Fed owns over $2.6 TRILLION of mortgage-backed securities.