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Former Fed Quantitative Easer Confesses, Apologizes: "I Can Only Say: I'm Sorry, America"

Tyler Durden's picture


By Andrew Huszar, also posted at the WSJ.  Mr. Huszar, a senior fellow at Rutgers Business School, is a former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program.

Confessions of a Quantitative Easer

We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.

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.

Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.

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."

My part of the story began a few months later. Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed's trading floor? The job: managing what was at the heart of QE's bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

This was a dream job, but I hesitated. And it wasn't just nervousness about taking on such responsibility. I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp. I could also see that they desperately needed reinforcements. I took a leap of faith.

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.

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.

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.

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.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

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.

Unless you're Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.

As for the rest of America, good luck. 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. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.

Even when acknowledging QE's shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy.

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Tue, 11/12/2013 - 07:28 | 4145318 Aknownymouse
Aknownymouse's picture

Turn up the heat during the Yellen confirmation

Tue, 11/12/2013 - 07:30 | 4145319 XAU XAG
XAU XAG's picture

He forgot to say sorry to the rest of the WORLD!

Tue, 11/12/2013 - 07:38 | 4145335 XAU XAG
XAU XAG's picture

@negative rates


Depends on what "your money" is? 


Fiat or real!

Tue, 11/12/2013 - 09:17 | 4145513 SafelyGraze
SafelyGraze's picture

crocodile tears

Tue, 11/12/2013 - 09:27 | 4145537 kliguy38
kliguy38's picture

yup........the fochin' piece o chit.......NOW ya tell us

Tue, 11/12/2013 - 09:37 | 4145556 SoberOne
SoberOne's picture

A once great nation is being intently destroyed by treasonous scum. Anyone who doesn't see it is plain ignorant.

Tue, 11/12/2013 - 09:48 | 4145592 pmbug
pmbug's picture

He's not truly sorry yet.  True regret will be realized when the current game ends and the suffering of the lambs is deafening.

Tue, 11/12/2013 - 11:01 | 4145844 Diogenes
Diogenes's picture

He'll be sorry when the pain he inflicted comes to him and his family. Which will be never.

Tue, 11/12/2013 - 13:22 | 4146403 Keyser
Keyser's picture

I have a feeling the IRS is looking up his address at this very moment. 

Tue, 11/12/2013 - 13:38 | 4146445 James_Cole
James_Cole's picture

One would think it would've been obvious to Huszar from the start what QE was really about (MS managing director??). Not to question his integrity too much, but there are also a lot of people short these markets..

Either way, must've taken a lot of balls to come out with this in the WSJ, Americans may take notice that they've been sold up shit creek yet again. 

Tue, 11/12/2013 - 14:02 | 4146524 Four chan
Four chan's picture

fed res "system"

enslave a free people to debt, capture all assets through boom and bust cycles the "system"creates with debt created out of thin air.


the system is treason.

Tue, 11/12/2013 - 14:04 | 4146533 DaveyJones
DaveyJones's picture

"I can only say, I'm an asshole America"

Tue, 11/12/2013 - 14:31 | 4146622 dontgoforit
dontgoforit's picture

Cloward & Piven Strategy - some Congressman/woman, please impeach Obama before we go down in flames!

Tue, 11/12/2013 - 18:35 | 4147740 MillionDollarBogus_
MillionDollarBogus_'s picture

If there is a profit to made in the stock market, do the writer's comments really mean anything..??

We are all capitalists here, right..??


Tue, 11/12/2013 - 21:50 | 4148398 TheReplacement
TheReplacement's picture

Sure 'cept this taint capitalism.

Tue, 11/12/2013 - 09:54 | 4145604 Wahooo
Wahooo's picture

This one is a buzzkill for sure. It's one thing to have analysts, bloggers and a couple of politicians lambast QE for its promiscuous liquidity. It's another for the guy in charge of the spigot to bluntly state that the Fed has been corrupted by WS banks and is working only to pump up their profitability. This one is going to have some legs.

Tue, 11/12/2013 - 10:21 | 4145698 Mad Mohel
Mad Mohel's picture

The only legs this will have are Mr. Huszar's as he is assisted in tripping out of a 30th floor window. That nigga better watch his 6.

Tue, 11/12/2013 - 10:40 | 4145712 Manthong
Manthong's picture

don't cry for me argentina

i never really left you

or maybe:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world - no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

or even..

"____ is money, everything else is credit"

Tue, 11/12/2013 - 11:56 | 4146056 ATM
ATM's picture

“Money plays the largest part in determining the course of history.”

Tue, 11/12/2013 - 12:56 | 4146298 Deo vindice
Deo vindice's picture

If you're going to bring race into the equation, you might at least want to look at his picture / profile...


Tue, 11/12/2013 - 14:33 | 4146631 dontgoforit
dontgoforit's picture

Time to 'throw off' the usurperous leech and re-instate the Republic.

Tue, 11/12/2013 - 10:56 | 4145810 Manthong
Manthong's picture

a. hmm.. i did not know he was a person of darker complexion but..

b. it seems to make sense given the impact of such august figures as Valerie Jarrett, Harold Raines and Eric Holder.

c. i ain't no racist, but gee whiz.. what do they say about coincidence? 

Tue, 11/12/2013 - 11:00 | 4145842 Manthong
Manthong's picture

ok.. this was a fun mental gyration..

and for all of you race baiters out there, there is plenty of blame to spread about the spectrum.

Tue, 11/12/2013 - 13:24 | 4146410 Keyser
Keyser's picture

And no one has a sense of humor anymore either. 

Tue, 11/12/2013 - 12:06 | 4146095 TeamDepends
TeamDepends's picture

But he's sorry.  It's the new "I was just following orders."

Tue, 11/12/2013 - 13:23 | 4146409 Nels
Nels's picture

Corrupted by the banks?  The Fed is and always has been a creature of the banks.  It's a credit to the author that he felt uncomfortable at the Fed the first time around, but a real black mark that he thought that buying mortgage bonds would be to anybody's benefit except the banks.

Tue, 11/12/2013 - 14:02 | 4146531 Breezy47
Breezy47's picture

I thought I'd help by sending the link to this to Drudge...

Tue, 11/12/2013 - 14:49 | 4146750 disabledvet
disabledvet's picture

Janet Yellen is the literal author of the entire policy. I look forward to the "hearings." are their more municipalities besides "mere Detroit" we need to worry about here?

Tue, 11/12/2013 - 19:39 | 4147984 stocktivity
stocktivity's picture

It's all Bullshit!!!

Tue, 11/12/2013 - 12:58 | 4146310 Prime Rib
Prime Rib's picture

"Demoralized I returned to the private sector." To do what, exactly. That was more than three years ago.

Tue, 11/12/2013 - 08:07 | 4145386 Indian_Goldsmith
Indian_Goldsmith's picture

A warning to all "law abiding" citizens of the world : Stay Poor or the Gubamint will make you poor!!

Tue, 11/12/2013 - 08:34 | 4145430 Burticus
Burticus's picture

"Gold is money.  Everything else is just credit."

Just doing your job?  Just following orders?  Expressing remorse for completing the destruction of the United States?  Ok, mac, you can liquidate all your assets, pay The People back in gold, then go to the end of the line leading to the gallows.

Tue, 11/12/2013 - 09:06 | 4145486 dontgoforit
dontgoforit's picture

A pox be upon them!  Usurpers of the free world.  Check out the O'Keefe video of the ACORN players back at it with the Obamacare sign-up (Drudge Report lead article currently)....cheats, liars and usurpers! 

Tue, 11/12/2013 - 10:58 | 4145833 DaveyJones
DaveyJones's picture

annoying lawyers (me being one of them) do not get to use that defense. His job's a little more important than mine. Getting sick of these co-conspirators saying "they forced me to do it." Criminal law, since we're talking about criminals, lays a high hurdle for the "coercion" defense. You basically have to be in fear of your life or safety or that of your loved ones.

(It's good to start practicing now for the grand trials of 2020)  

Tue, 11/12/2013 - 11:04 | 4145861 IndyPat
IndyPat's picture

Better call Saul!

Tue, 11/12/2013 - 11:10 | 4145875 dontgoforit
dontgoforit's picture

There's an 'event' day coming - 'they' kind of know when give or take a month or two, but 'they' know it's getting close.  It's gonna be a shocker and on that day the wealth of the world will escape like a silent dam of helium inexorably floating away, burst from the giant bubble it is.  You know it, I know it, 'they' know it.  When folks like this start to hint at it you know it can't be far off.  Be prepared.

Tue, 11/12/2013 - 11:32 | 4145963 HardAssets
HardAssets's picture

The more CYA language we hear, the closer we'll be to Crunch (ur nuts) Time.

Not from those who can afford their own jet, (so can get outta town), but from those lower on the totem pole.

Tue, 11/12/2013 - 12:01 | 4146075 ATM
ATM's picture

My thoughts exactly. Mr. Huszar seems to be building a defense for SHTF time. He must not be tied in close enough to get the protection all these other fuckers think they are going to get.

It is my opinion that those that beleive they are protected will be the first to be held up for public flogging. Those that think they pull the strings will be hung from the end of one. 

Tue, 11/12/2013 - 14:53 | 4146775 disabledvet
disabledvet's picture

new Mayor opens financial books of New York City "told they only have two more weeks."

Tue, 11/12/2013 - 08:34 | 4145431 Hobbleknee
Hobbleknee's picture

Take my wife, PLEASE!

Tue, 11/12/2013 - 10:01 | 4145623 El Oregonian
El Oregonian's picture

Take my WIFI, Please? NO! NOT THAT!!!

Tue, 11/12/2013 - 10:26 | 4145716 Cacete de Ouro
Cacete de Ouro's picture

I take my wife everywhere, but she keeps finding her way back!

Tue, 11/12/2013 - 13:32 | 4146436 Keyser
Keyser's picture

Henny Youngman called and wants his joke back. /jk


Tue, 11/12/2013 - 09:25 | 4145534 booboo
booboo's picture

In prison it's "blood on my knife or shit on my dick"

Tue, 11/12/2013 - 12:02 | 4146078 ATM
ATM's picture

It's "blood on my knofe or dick on my shit."

Tue, 11/12/2013 - 07:33 | 4145322 GetZeeGold
GetZeeGold's picture



To make it up for you....we've just put our bonds on sale.


One day only! Strict limit of five per household. Call now!

Tue, 11/12/2013 - 09:04 | 4145479 macroeconomist
macroeconomist's picture

Well-said Xau. It is not only the U.S the FED (together with BoJ and BoE) has created bubbles, it is all over the world. The volume of the bubble is unprecedented in some developing countries, where stock market indexes have tripled since 2009, bond yields are at historical lows, and credit expansion has gone off the roof (unlike U.S and U.K) due to immense carry trade going on...This will end in a catasrophe in these countries when the tapering finally (if ever) comes.  

Tue, 11/12/2013 - 11:24 | 4145938 Al Gorerhythm
Al Gorerhythm's picture

Your grasp of the machine is limited. There won't ever be a tapering. Ever. There's a solvency cricis of the currency issuing banks. For them to taper means that somebody doesn't get paid on their coupon bearing bond or derivitive. That's what Bear Sterns was all about. They didn't get the income stream they were promised on their MBS and so decided to auction them. The auction for their AAA rated junk bond, only realized a 10 cent in the dollar return. That bond was a good-as-gold paper promises. Full par value on redemption or maturity. Phhhtt. The only way to stop an avalanche of macro perception change was to get Hank Paulson to demand that the government bail them out with TARP (the essence of this article) or the whole edifice would crumble (what with them all being linked to one another (the derivitive mountain of more IOUs). If money is not created to keep the last roped-in "investor" happy with his "returns", then perception changes at the margins and collapse of the entire mountain ensues. They have to extend credit and print money to cover losses. The government spends money into circulation, even if they don't have it in reserve; they just deficit spend, increasing the nation's debt, therefore the debt ceiling is a fiction. It's spend and print, or die. There is no plan B and Keynes was a dolt to expect any other outcome.

Tue, 11/12/2013 - 12:07 | 4146099 ATM
ATM's picture

Someone junked you for the truth? 

We live in a house of cards held up by the faint hope that we can keep adding endless levels new floors on top of other shaky floors hoping the new weight from above will firm up the flimsy underlayers.

Seems to be working until it doesn't then it comes down all at once.

Tue, 11/12/2013 - 17:05 | 4147418 lunaticfringe
lunaticfringe's picture

It was the guy above him.

When this fucker finally collapses it will be interesting to see whether precious metals collapse. My gut tells me that this time- the metals will not plummet as they usually do when the market/dollar collapses.. I think there will be a tsunami of people trying to buy physical.  

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