Why did the Fed go insane with the MBS purchases?

I’ve been railing against the Federal Reserve’s ridiculous monetization of the MBS market forever, lately on Substack. e.g.,

• The Consequences of an Unaccountable Federal Reserve

• “When they started buying mortgage-backed securities, that was a terrible mistake.”

Randy Woodward is a banking industry veteran who has been selling bonds to banks for years. I’ve posted a couple of his interviews recently, in my posts here and here.

The Fed - which owned ZERO mortgage-backed securities until 2009 - still owns $2.575 TRILLION worth, having massively distorted the housing market for 15 years, even as home prices popped 20%+ a year nationally.

QT? What QT? (Semi-log scale to show the magnitude of what the Fed did, and that QT is a joke.)

Particularly annoying is that almost no one cares.

So WHY did the Fed go so insane in 2020 with the MBS?

“They were saving somebody”

Woodward thinks it may have been someone “overseas,” related to CLO losses. Would not be the first time the Fed has secretly bailed out FOMC member’s future employers. e.g.

An example from Christopher Leonard’s excellent, The Lords of Easy Money, talking about September 2019 (well before Covid gave the Fed more cover):

The central bank had transformed the financial landscape by swamping it with money and in doing so had destroyed one monetary regime and replaced it with a new one. But there was no reliable instrument to measure the terrain of the new regime. This fact was made a stark reality on Monday, when the repo market blew up. The resulting market crisis almost became a full-fledged financial crisis, at a moment in history when the markets were supposed to be stable and in good health. The only reason that this didn’t happen was that the Fed stepped in, almost instantaneously, and initiated a $400 billion bailout. This bailout was unprecedented, and it benefitted a small group of hedge funds that had essentially hijacked the repo market and used it as a vehicle to make risky bets. The Fed saved them from the consequences of those bets.

• “A lot of what the Fed now has to do, remember, is going to go to these nameless hedge funds. Nobody wants to name them, because nobody wants to know that quantitative easing is there to bail out some hedge funds." - Raoul Pal, March 16, 2020

• "Some people talk about the Federal Reserve coming in & spending all this money to support the credit markets and to inject liquidity into the system - it was not meant for middle-class America. It was not. This was bailing out many of these billion-dollar hedge funds..." - Chris Cole, November 2020

The Fed doesn’t work for you (unless Larry Fink is reading this). The Fed works for the large global financial firms they’ve made too big to fail.

This is from 2009:

Nothing new under the Sun.

(Here’s the entire video for the clip at the top. Also, Jack’s a nice guy but I think he may be hanging out too much with kleptocracy apologists lately.)

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