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.
The entire piece is excellent, containing lines like, “We were working feverishly to preserve the impression that the Fed knew what it was doing.” And: “Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.”
Huszar shows (what everyone should already know) that buying bonds was a gift to the banking/Wall Street sector that did virtually nothing for any other part of the market or economy. It is keeping stock prices high for now, but a collapse could set in soon. “Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again ‘bubble-like.’”
So we are now stuck in a welfare system for billionaires while the rest of the population languishes. Bernenke will never admit that 1) the Federal Reserve is doing the wrong thing or 2) that the right thing would be to do nothing—“a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces.” But what Huszar forgets to mention is that, if she thought otherwise, the Wall Street crony “advisors” to the President, who are also his campaign donors, would never have let her be given the position.
That’s quite a country we’ve become.