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Former Fed Quantitative Easer Confesses, Apologizes: "I Can Only Say: I'm Sorry, America"
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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Sounds like an arsonist explaining why he burnt down an economy.
Wow,this one really pushed the oingo-boingo button!
Quantitative geezer
Looks like Mr Hussar has just made his case prima facia for the gillotine!
there are no mea culpas that get you off the list.
Well since the Fed is owned by foreign banks, let THEM take the loss due them. JFK excutive order #11110, let the US Treasury print it's own money and may God Bless America! The foreign banksters can suck ass.
It's nice to hear an insider confess what I have been screaming since day on. "This is a bailout for those who are long the stock markets". Nothing more, nothing less. The crash of 2008 unleashed a huge wave of wealth and power tranfer from the 99% to the 1%. This may offend some people because it's sounds like liberal class warefare talk. Well, can those people face reality? The warfare is going on, the Fed and it's banking allies are winning the war. Wages are stagnant or down, jobs are down, benefits are down, the markets reach new highs daily. And do you know the real kicker in this class warfare from the top against the main street economy? The biggest losers have been samll business, any person attempting to compete with the big box corporations is being crushed by Fed policy. You need to face that fact, small business in America is being totally destroyed by big corporate power. Example. IN my own samll town we have had two auto parts stores for decades, family run for generations. Everyone from my granddad to me has bought our parts from one family shop or the other. They are strapped for capital to expand or improve, they basically struggle to keep the doors open, despite our customer loyalty. Here come a big, huge auto parts chain out on the highway into town, in one month a vacant space becomes a huge auto parts store, looking to serve this town of 3,200 people and the large rural areas up north with another 3,000 people. They are flush with ZIRP cash to expand, their corporation can obtain a billion at near ZIRP should they want it. Long story short, how long does small business survive now in this town. Those two stores are toast. Victims of a free market? Yes. victims of a fair market? Fuck no. Big corporate America is on a wave of ZIRP fuled expansion into every last little town and village in America. We went from 6 family run restaurants a decade ago to 1 family run pizza place. The profits from the big chains goes OUT OF TOWN. The wages are shit, the jobs are part time.
Class War is real, unless you are the 1% you are on the losing side. Look at small business around you, they are on the way out, for good.
Oh so sorry.
So sorry the truth hurts so many that have embraced the illusions, lies, total dis/mis-information, and general horsewash of the babylonian snake oil spewers.
If you have not watched this very powerful and informative video, do so ASAP. Watch this and understand the behind the scenes agendas of the evil we see at work here, and in so many other places. The cadaver of evil is all strewn through out society. Once you see it's evil face here, you will see it everywhere. The question remains, what will anyone do about it once they see their own demise facing them down?
Check this out.:
"What does healthcare providers have to do with sustainable development?"
"It says in here that every person on earth has to be covered by health care insurance."
http://www.youtube.com/watch?v=9GykzQWlXJs
Depending on how much traction this story gets, this is possibly the best thing Huszar will ever do.
Ideally, everyone passes this around, people start making noise about the need to taper QE and forces the Fed to do so in December or January. This sends the S&P into sideways shuffle or a brief drop and bonds yields start rising, with any luck, we could be on our way to building from scratch in 2015.
OR, the story gets ignored and buried until the S&P500 crashes again and is this is hailed as the story 'we should have listened to' as the riots begin.
Not so many people would care Coco, the guy stepped forward and confessed, maybe hes getting a new identity and a passport (Of course after he frontrunned every fucking market) .. well smart move.
Oh FUCK You Bernanke and Yellen
One by One .. Step forward please.
Tyler,
Unban Francis_Sawyer
Refreshing to hear what seems to be a little honesty.
However: "Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding."
Really?!? If he seriously believes the Fed has ever been, or was ever intended to be "independent"... he is pretty damn naive.
Cool story bro. Get a rope.....
I dunno. This guy isn't an economist, nor did he design the program that he is deriding. I'm not sure that this "revelation" is very important.
That said, I'm no fan of QE and it is obvious that it has greatly benefitted the "Capitalist" class over the workers in America. This just sounds like blatant attention grabbing to me.
So, a smart mutt like Andrew Huszar wants us to believe that he never knew that "The Fed" is a cabal of private banks, and the families that own them, working in their own best interests?
Go peddle that Eddie Haskell crap somewhere else, Huszar. You knew exactly what you were doing.
Mea culpa, mea culpa, mea maxima culpa (but I get to keep my front running profits....ahem).
First we had Sandy Weill, then Robert Rubin, Hank Paulsen, then we had Alan Greedspan .... now the actual "Buy button" pusher Hazar.... beating their culpable chest for future mercy.
A gladiatorial Thumbs up or Thumbs down ?
Oh yeah Hank's performance was stellar in September of '08. Quite a show, yep.
But he was only doing his job...... thumbs down anyway.
I guess he figures it's worth a shot after he saw Barry get away with a phoney apology for screwing us out of our health insurance.
Don’t worry,
*(Moar) debt is on its way...
Eff this prick: https://www.google.com/search?q=Andrew+Huszar&newwindow=1&source=lnms&tbm=isch&sa=X&ei=IsSCUtyMGKjmiwK47oCYAw&ved=0CAkQ_AUoAQ&biw=1280&bih=933#imgdii=_
Let's be generous and ignore that
another person in NJ may have
cleared Iceland to kite our
brilliant bankers' mortgage bubble.
For me, this mainly adds to the
New Jersey jokes.
What did Della wear? She
wore a New Jersey.
Guy meets gal from New Jersey.
Hi, I'm from New Jersey.
Really? I am too.
Oh, wow.
What turnpike exit do you
live off of?
Why is it that when a Manhattan
psychiatrist tells her patient
that she can see the light at the
end of the tunnel it doesn't help
the patient?
Because the light at the end of
the tunnel is New Jersey.
All in fun, NJ.
http://www.nyhabitat.com/blog/wp-content/uploads/2008/04/new-york-from-n...
http://images.travelpod.com/tripwow/photos/ta-041f-6c10-adca/aerial-view...
I'm also jealous I don't have a Wegman's.
http://goo.gl/tM5ho2
That Wegman's is Princeton's.
This, more pressing than privatization,
is presumably from New Brunswick.
http://thinkprogress.org/climate/2013/06/08/2109821/video-climate-arctic-death-spiral-and-weather-whiplash/?mobile=nc
TBTF is synonymous with privatizing
the profits and socializing
(ONLY) the cost to infinity.
Privatization Should Only
Exist At The Sufferance Of
Public Regulation.
Where The Public Exists At
The Sufferance Of The
Privatizer, That's Feudal.
If You're Not Creating A "Natural"
Monopoly, Then The Only Time It's
Right To Privatize Is If It Will
CREATE MORE Competition.
(I've a couple relations in Princeton.)
(Will you please get your minds
out of the gutter.)
The Fed is too big to fail.
you mispelled Jail, the FeD is too big to Jail.
Jail starts with a "J", not an "F"
Now is the time for as many reality-based politicians as exist in D.C. (not sure that amounts to much) to cite this revelation and stop this crap. Instead, turn that $85 Billion around into something that will create jobs, infrastructure, and put the money into the hands of those on Main St., not Wall St.
That's what it will take to turn this bastard around economically. Of course, that was never the goal. They were "foaming the runway"(Geithner) for the banks.
This is all BS pandering to what the people want to hear. What would any of the people complaining on this site have done to save the US economy from sinking into oblivion? Left long rates high? How many fewer mortgage apps would we see at 8%? How many homebuilders would have increased inventory with 8% mortgages? How many would be benefiting from refis at 4%?
Seriously, do you think they should have just let the 12 major banks fail and watch the stock market lose 99% of its value?
In 2009 we were on the verge of a deflationary depression and we are still suffering.
If the Fed had done nothing the same people blasting them now would be blasting them for not doing enough. We just wouldn't be able to read thier posts online because there would be no electricity!
Think about it.