Courtesy of Larry Doyle.
It is not often that, in the midst of my daily morning reads, my jaw drops and I am left aghast by a writer’s hard hitting delivery. While many an editorial and commentary dive into topics that I appreciate and find riveting, I do not often find a writer from inside the arena who freely and openly speaks his/her mind.
This morning I had just such a pleasure.
While America and the world have been force-fed the notion that the Federal Reserve’s quantitative easing programs have been the magic elixir nursing our economy back to health, Andrew Huszar has a decidedly different take.
Who is Huszar? Only a former Fed official responsible for executing a large part of the Fed’s bond buying. Currently a senior fellow at Rutgers Business School, Huszar gains immediate induction into the Sense on Cents Hall of Fame as he pulls no punches in delivering a knockout in this morning’s WSJ. He begins with an apology. It only gets better from there.
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 . . .
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 . . .
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 . . .
. . . 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 . . . That was when I realized the Fed had lost any remaining ability to think independently from Wall Street.
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. The biggest ones (i.e banks) 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.
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.
Not a lot left to interpretation there.
Well done, Mr. Huszar.
Navigate accordingly.
