Hey, Main Street! (Good Luck To You Because You're Going To Need It)

Confirmation hearings for Janet Yellen started this week. She will be the next Fed chief, replacing "Helicopter Ben" Bernanke early next year.

Hopey-Changey wanted to nominate The Prince Of Darkness to be the next chairman of the Fed, but it appears that some moves are so outrageously self-serving that our ruliing elites are too embarrassed to go through with them.

We The People of course will be getting screwed over and over again, but it's good to know that there are limits to creating the appearance that we are about to be screwed over and over again.

Janet is like Ben, only more so. Yellen's confirmation hearings come on the heals of a Wall Street Journal op-ed by Andrew Huszar, formerly a managing director at Morgan Stanley and head of the Federal Reserve’s $1+ trillion mortgage-backed security (MBS) buying program in 2009-2010, otherwise known as Quantitative Easing (QE).

The editorial's title is "Confessions of a Quantitative Easer." Mr. Huszar had some interesting things to say. First, he wants to apologize, which is something we don't hear nearly often enough from the Big Money Boys.

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.

Well ... yes ... thanks for the heads up ... hmm, I'm feeling uncomfortable here ... there seems to be something jammed up my ass.

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.

Clueless is a good word, I use that word a lot. And dysfunctional is a good word, too. Andrew uses that one below.

But corrupt is also a very good word which doesn't get used nearly as often as it should. And by the way, it matters not at all whether these tireless Fed technocrats are aware that they are corrupt or not.

adj. having or showing a willingness to act dishonestly in return for money or personal gain (or the personal gains of others)

In fact, there seems to be a conspiracy of silence regarding the word corrupt in America—nobody seems to be willing to say this word outloud. Andrew couldn't bring himself to use it. This sad omission notwithstanding, he finishes with a flourish.

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.

Hey, Main Street! Good luck to you because you're going to need it.

Comments

[Kevin]

Nice post, thanks for highlighting the WSJ op-ed.

Here are a series of non-germane news items that I think you'll appreciate as potential fodder for future posts, Dave.

(1) Grist, "Researchers kill oldest living animal to verify it’s the oldest living animal, "http://grist.org/living/researchers-kill-oldest-living-animal-to-verify-its-the-oldest-living-animal/;

(2) Yale 360, "U.S. Crushes Six Tons of Illegally Trafficked Elephant Ivory," http://e360.yale.edu/digest/us_crushes_six_tons_of_illegally_trafficked_elephant_ivory/4002/ ;

(3) Prof. Turley's blog, reporting on the Guardian story, "Indian Railway Officials Refuse To Slow Trains Through Elephant Reserve . . . Train Strikes And Kills Seven Elephants and Injuries Ten Others In Single Accident," http://jonathanturley.org/2013/11/14/indian-railway-officials-refuse-to-slow-trains-through-elephant-reserve-train-strikes-and-kills-seven-elephants-and-injuries-ten-others-in-single-accident/ .

And so it goes.