One of the men who oversaw the Federal Reserve’s first round of quantitative easing is making a remarkable statement with an op-ed in The Wall Street Journal today.
“I’m sorry, America,” Andrew Huszar writes.
Huszar, who was initially hired by the Fed to oversee the purchase of $1.25 trillion worth of mortgage bonds in a year, goes on to describe the program as the “greatest backdoor Wall Street bailout of all time.”
Quantitative easing was first introduced by the Fed at the height of the Great Recession. It was intended to spur banks to lend more money to regular Americans, but Huszar argues that all it has done is line the pockets of big banks, who have sat on capital and gotten richer through fees tied to transactions under the program. The Fed knows this, Huszar argues, but it is still continuing the program at the behest of Wall Street.
The whole piece is worth a read, but here is a key portion:
“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.”
Fed Chief Ben Bernanke has been pressed on this point in the past. For example, during one of his press conferences in September of 2012, Bernanke was asked if the Fed’s continued purchase of $40 billion a month in mortgage-backed securities amounted to “trickle down economics,” where the banks are given money in hopes that the loans will “trickle down to the rest of America.”
Bernanke defended the program, saying that this program fit within the tools of what the Fed could do. The Fed can’t, for example, “create a program that lends directly to consumers.”