Story by Sonya Sandage and Ben Swann
“I’ve come to recognize (Quantitative Easing) for what it really is: the greatest backdoor Wall Street bailout of all time”, writes Andrew Huszar, former head of Federal Reserve QE program in a stunning “confession” in the Wall Street Journal this week.
Consider the fact that up until 2008, virtually no American was aware of the economic term, Quantitative Easing. QE, as it is called by media is the Federal Reserve Bank’s policy of bond purchases in order to support bond prices. Bond buying via Fed Open Market Committee is a typical practice, but the $4 Trillion in QE we’ve seen over the last five years is anything but typical.
The Fed essentially is printing $85 Billion per month, out of thin air, using that digital money to buy bonds up, and trade them out with cash reserves or ultra-short term notes. Banks and hedge funds that owned the original bonds are then supposed to pump that money into the economy, creating a virtuous cycle.
What we now know, five years after the start of QE1, is that Quantitative Easing does virtually nothing to improve the U.S. economy. The reason for that is actually pretty simple, most of the loose money courtesy of Fed printing is being reinvested into even more bonds, as well as derivatives and stocks.
It’s not being invested in creating new businesses, or significantly increasing lending. The $85 Billion per month is not being reinvested into biomedical research, tech, space exploration, or really anything innovative that will create economic growth. This does not help the common man, aka Main Street. It does help investors, including 401(k) and IRA owners, and has made them richer than ever in their accounts. If there is a major market correction when a taper does start though, those gains could evaporate.
So what is the QE policy all about? According to Huszar, again the former head of Federal Reserve QE program, Quantitative Easing is really nothing more than Wall Street welfare.
“It has allowed QE to become Wall Street’s new ‘too big to fail’ policy.” writes Huszar.
Huszar goes on to write, “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.”
Long have critics alleged the policy is actually designed to prop up the balance sheets of the very same “Too Big to Fail” banks that caused the financial crisis by deregulation of Glass-Steagall, and irresponsible gambling in derivatives, as well as outright fraud.
To read the full confessional piece by Andrew Huszar, click here