“I’m sorry, America,” writes former Federal Reserve official Andrew Huszar, the quarterback of the largest bond-buying spree in American history, who claims U.S. taxpayers are on the hook for more than $4 trillion in government bond-buying debt, also known as quantitative easing, or QE. “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.”
Huszar, a former Morgan Stanley managing director, managed the Federal Reserve’s $1.25 trillion agency mortgage-backed security purchase program from 2009 to 2010.
Writing in The Wall Street Journal last week Huszar continues his mea culpa: “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.”
Huszar claims that quantitative easing, or QE, isn’t working. He worries it could end badly for U.S. taxpayers. But QE is great for Wall Street, he claims.
“Trading for the first round of QE ended on March 31, 2010,” writes Huszar. “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.”
By 2010, Huszar started to question the wisdom of QE-1, but the bond-buying party was just getting started. QE infinity seemed to be the new policy.
“You’d think the Fed would have finally stopped to question the wisdom of QE,” he argues. “Think again. Only a few months later — after a 14 percent drop in the U.S. stock market and renewed weakening in the banking sector — the Fed announced a new round of bond buying: QE2.”
Huszar ends his public confession with a warning and some advice.
“As for the rest of America, good luck,” writes Huszar, a senior fellow at Rutgers Business School. “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.”
Wow! You don’t get this type of honesty from the Fed every day.