Is QE3 Yet Another Stealth Bank Bailout?

It’s difficult to puzzle out what Bernanke thinks he is accomplishing with QE3. The level of bond buying, as various commentators have pointed out, is much lower than in the earlier QE programs. And pulling out bigger guns in the past was not terribly productive. As we wrote in April 2011 in a post titled “Mirabile Dictu! Economists Agree All the Fed Has Done is Goose Financial Markets!“:

You heard it first in the blogopshere. From the New York Times:

The Federal Reserve’s experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.

But most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs….

A study published in February found that interest rates decreased, but only for companies with top credit ratings. “Rates that are highly relevant for households and many corporations — mortgage rates and rates on lower-grade corporate bonds — were largely unaffected by the policy,” wrote Arvind Krishnamurthy and Annette Vissing-Jorgensen, both finance professors at Northwestern University

We’ve argued repeatedly, as have others, that well targeted fiscal stimulus and more private sector debt restructuring were the right medicine. But Obama and his bankster friendly advisors had no stomach for much of either remedy.

For what it’s worth, QE and QE2 have gotten a barrage of criticism. Jim Hamilton looked at the much bigger first round of QE and concluded that it lowered long bond yield by only 17 basis points. Paul Volcker thought making a fuss over the program was silly, since the Fed used to buy bonds as a matter of course. And as Marshall Auerback has pointed out, the idea of a fixed dollar amount of purchases was bizarre. There was no way of knowing what if anything it would accomplish. It would have made more sense for the central bank to set a rate target (say for whatever longer-dated maturity it chose to target) and buy whatever it took to keep that level.

You could argue that the big impact of the QEs was psychological, that it was tangible proof that the Bernanke put was the Greenspan put on steroids.

Back to the current post. Given that previous QEs amped up the stock market, weakened the dollar, lifted commodity prices, and made central bankers in emerging markets mighty unhappy (risk on trades boosted their currencies and sent hot money into their economies, developments they did not like), all on a temporary basis, it’s quite a stretch for Bernanke to depict it as a way to boost employment in the US, unless he has a very bad case of “if the only tool you have is a hammer, every problem looks like a nail” syndrome.

One interpretation is that Bernanke, despite his protests otherwise, is giving the stock market a short term sugar high to assure an Obama reelection. The Republicans have threatened to take hot pokers to the Fed, so Bernanke could rationalize his actions as preserving his institution rather than mere electioneering.

Another is that the central bank is quite cognizant of what it is doing and is deliberately boosting bank profits, perhaps also hoping that the banks will eventually feel robust enough to do more lending. The wee problem is that financial speculation is so much more profitable and much easier to dial up and down quickly.

Even though mortgage backed securities prices rose (as in interest rates fell) sharply after QE3 was announced, mortgage rates remained unchanged:

The average rate on a 30- year fixed mortgage held at 3.55 percent in the week ended Sept. 13, near a record-low of 3.49 reported July 26 in data dating to 1971, according to McLean, Virginia-based Freddie Mac.

The New York Times’ Dealbook on Friday evening took note of the failure of banks to lower borrower interest rates in light of more favorable funding costs:

The federal funds effective rate, one short-term rate that banks use to lend to each other, is at 0.14 percent. That compares with a rate of 3.62 percent in September 2005.

The 10-year Treasury note has a yield of 1.87 percent, down from 4.2 percent in 2005. These are huge declines.

Yet the cost of credit card loans has hardly budged. The Fed’s own data shows that average credit card interest rate was 12.06 percent earlier this year; in 2005, it was 12.45 percent…

But even when fear of default is removed from the equation certain interest rates seem to be stuck too high.

Take mortgages. The federal government agrees to shoulder the cost of defaults in nearly all of the mortgages made today. Banks make mortgages to borrowers, and then take those loans and attach the government guarantee of repayment to them.

After that, they package the loans into bonds, which they then sell to investors. The Fed’s purchases of these bonds have helped their yields fall to 2.2 percent. But the cost of mortgages to borrowers hasn’t fallen anywhere near as much.

The banks are choosing not to reduce mortgage rates further. One reason: By keeping the rates elevated, they are able to earn much larger profits when they sell the mortgages into the bond market. If the level of profits on those sales stayed at recent average levels, borrowers might, for instance, pay $30,000 less in interest payments on a $300,000 mortgage, according to a recent New York Times analysis.

Today, the Financial Times took note of the issue, but added a bit of bank PR: they really, truly want to lend more, but golly gee, they haven’t staffed up:

The Federal Reserve’s attempt to push aid into the heart of the US economy is being blunted by banks struggling to process mortgage applications fast enough, keeping rates on home loans elevated, according to the largest lenders.

“In the very near term [QE3] has virtually no transfer mechanism whatsoever to the customer,” said one executive at a leading lender, who requested anonymity. “Originators are massively backlogged in terms of origination volumes.”
Steven Abrahams, MBS analyst at Deutsche Bank, noted that the yield on mortgage-backed securities fell more than 30 basis points after the Fed announcement.

“Very little of that is likely to make it through immediately to consumers,” he said. “There’s nothing that will force mortgage originators themselves to lower the rates that they’re offering to consumers. Right now they have their hands pretty full in terms of the pipeline and managing paperwork and making loans. These folks are busy. There’s not a bunch of people on long cigarette breaks.”

MBS Guy confirmed our skeptical view:

No one on the planet can be surprised that mortgage rates are very low and refinancing is attractive (few bank executives should be surprised by QE3, plus they’ve all been banging on the table for it for the last few months).

Yet, for some reason, banks don’t have the staffing to originate loans faster, as if they were somehow unprepared for this environment. It’s preposterous.

The only explanation: lenders don’t want to originate any faster.

They want to capture more spread and, perhaps, they want fewer people to lock in at lower rates?

Nonetheless, QU3 will be a huge opportunity for bankers to make a lot more trading revenue and come up with new strategies to leverage and arb the new regulatory environment. The Fed basically confirmed low rates and continuous MBS purchases through 2015 – that provides a lot of opportunity to make money. Lending, however, is an afterthought.

Note that there has not been a peep out of the Fed on the failure of the banks to lower borrower rates to reflect their cheaper funding costs. The central bank has a powerful bully pulpit, and if it were to make noise, you’d see Congresscritters and the media piling on. One wonders if the Fed has even broached the topic privately. I can imagine Jamie Dimon grousing about the loss of profits on float and the flatter yield curve justifying them taking margin wherever they find it, and the Fed unwilling to point out that the banks created the new normal and they need to adjust to it too.

So the Fed looks to be completely on board with this sort of rent-seeking. Perhaps the central bank believes its charges need more in the way of earnings to strengthen their balance sheets, even though history shows they prioritize executive bonuses over building their equity levels. Or maybe Bernanke was being completely truthful when he said QE3 was targeting employment. After all, fatter bank margins will preserve their staffing levels.

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  1. Edward

    There’s nothing stealthy about this manuever unless one thinks that the glossy rhetoric put forth by Bernanke about goosing employment amounts to a viable smokescreen. What is most significant, in my view, about this announcement is that these operations are open ended. Also there is no indication that these purchases will be sterilized. One must now expect that future announcements will only pertain to the size of cash for trash and sovereign debt bond buying.

    In the meantime it would be helpful if all concerned realized that QE is about supporting Uncle Sam’s lifestyle and the commercial big banks. Employment and price stability are canards tossed out by Bernanke to provide cover, albeit said cover is clearly bogus.

    1. Jim Haygood

      The wee problem is that financial speculation is so much more profitable and much easier to dial up and down quickly. — YS

      I’m with you on the ‘up’ part. But the ‘down quickly’ aspect is a bit of a double entendre.

      Take a look at what’s happened to TLT, a 20-year-and-up Treasury fund, since the end of August. It’s gotten smackoed by more than 7 percent. Needless to say, in the formerly staid world of fixed investment, a seven-percent whackage in half a month is a bloody horror show. Chart:

      Banks (particularly in Europe) are loaded up on sovereign bonds, so sharp price declines in bonds just worsen their plight.

      Meanwhile, a very different picture is emerging in TIPS (Treasury Inflation Protected Securities). After an ugly 0.6% pop in the CPI was announced last week, TIP (an ETF which holds all 35 or so outstanding TIPS issues) is actually UP since the end of August. Chart:

      But inflation-indexed TIPS are a small component of bank holdings, compared to conventional sovereign bonds which wilt in price as inflation rises.

      If the Bernank were managing a fixed income fund for me, I’d call him into my corner office this fine morning and fire his ass on the spot. ‘You’re OUTTA here, Beardo!’

      1. Matt

        It is a pretty sure thing that the banks have been reducing their holdings of treasuries and MBS as the FRB has been increasing their holdings.
        Freddie and Fannie are required to reduce their holdings and guarantees. FHA is a slow train wreck. Is this not a bailout of the GSEs?
        Money is debt, and the only way to finance the US deficit is for either US banks to create more money to deposit/lend to the FRB or for off shore entities to create more money and buy treasuries.
        U.S. consumers are paying down debt albeit slowly. There is no demand for additional debt when consumer income is so stagnant. Under water mortgages understate the loan to value problem. Without 20 percent equity the increase in interest rates/points makes refinancing impractical. Mortgage debt remains at higher interest rates for both the under employed and those locked in with low equity.

  2. rjs

    that it’s a stealth bank bailout was the conclusion i came to as well; they’re buying half the mortgage debt at a time when banks have been holding 90% of their REO off the market trying to squeeze prices higher…the Fed is reblowing the housing bubble to get the banks off the hook..
    “a highly accommodative stance of monetary policy will remain appropriate for a considerable time”, ie until the banks unload the shadow inventory…

    ive got a few linked paragraphs & two graphs showing what ZIRP & QE has really accomplished:

    1. Bam_Man

      Pretty much my thoughts too.
      It’s likely that the banks have “run out of time” and will have to begin foreclosing on the multitude of properties in actual default that they refuse to recognize as such.

      “Strategic defaulters” will pay the electric bill and keep the lawn mowed, but I doubt they will replace an A/C system or a roof. After 2-3 years, these properties will begin to seriously deteriorate – even though they are occupied.

      The fact that the Fed will be buying up MBS tells me that the banks are preparing for a new wave of ACTUAL foreclosures.

  3. Ben Johannson

    @Yves Smith

    QE is reducing income for banks. It takes away assets with performance in the 3-4% range and replaces them with effectively useless excess reserves which will sit in an account earning 0.25% from the Fed’s support rate.

    What Bernanke is doing is “let’s get through this quarter with temporarily higher asset prices” type thinking, while ignoring the long-term loss of income.

    1. Tim

      Although your simpified analysis is correct, if they destroy the dollar and provide no interest the Fed kills the banks, but you forgot the banks can put those holding on deposit at the fed earning a heck of a lot more than .25%.

      That’s what makes it obvious it’s a stealth bailout. Reducing interest paid on deposits is the most obvious thing the Fed could do to force the money the banks have sitting around into the economy (something even the Fed complains about!), but they won’t do it. Other than asset reflation, it is the biggest thing restoring US banks’ balance sheets.

  4. Conscience of a Conservative

    I find some aspects of the Fed’s new QE strategy puzzling.
    First by telling me that low rates are here to stay for quite some time, I don’t have a strong need to borrow now.
    Secondly paying banks to keep money at the Fed banks doesn’t exactly encourage lending. Third for some products the rates are so low that there isn’t enough yield spread to compensate for the risk of the product or from an investor stand-point, when the reward for duration risk is not there, might as well hunker down and keep the cash earning zero and wait for a future opportunity(it’s always harder to regenerate those funds than to waste them).

    As far as the stock market is concerned, it irritates me to no end hearing the fianncial pundits equate stock market performance with economic performance. That Bernanke continue to pay no attention to the income effect and lost consumption from those that derive their spending from savings(seniors on fixed incomes). And this thought that we can depreciate the dollar while to generate exports which is the exact same strategy of virtually all our trading partners is lunacy. We don’t discuss the inflationary aspects of a lower dollar either. Our leadership is bankrupt.

  5. ArkansasAngie

    It kept the stock market high. A high stock market keeps the pensions up.

    The income effect? Well … income is transferred from savers.

    And … it allows the Fedury room to print money in synch with the EU

    But mainly it keeps the whole thing from becoming an election year hammer.

    Fed printing means I’ll have to vote against Obama. I would have voted 3rd party. Now I will hold my nose a vote Romney. Not becuase I like him, but simply because he isn’t Obama.

    1. bhikshuni

      Let me guess, male privilege?

      (corporeal sovereignty not at stake for men; but don’t think the ultrasound probe isn’t coming for you too, oh mighty ones! )

    1. Jim

      Engaging video, Reggie.

      But why should the Fed buy small biz loans? Who gets to decide who wins a Fed bid on their paper?

      I do agree that QE3 is a bank bailout. But it’s no different from what Draghi’s doing in the ECB.

    2. Clark Thornton

      I was thinking about adding a comment about your hilarious “from outside the FBRNY” video, since I thought that maybe some NC readers had missed it, but the maker of the vid himself beat me to it. The only thing that might save this country are those who will tell the truth, without equivocation. Thanks Reggie, and Yves.

  6. Andrew Watts

    It’s not a bailout in the mind of Ben Bernanke. Read some of his pre-crisis speeches on the matter. It is quite revealing. He does seem to be genuine in his belief that his present actions will end the economic crisis. Even though there is abundant evidence to the contrary.

    Conventional wisdom insists that raising interest rates caused the Great Crash of ’29. That flooding the markets at the time with liquidity would have halted and then ended the Great Depression. Even though the Fed attempted pretty much the same thing through a low interest rate policy back then. Though it was through traditional open market operations and not open-ended bond purchases.

    Perhaps in the face of failure he’d rather be seen as doing something rather then nothing. Occasionally I imagine Bernanke pulling his hair out screaming “Why doesn’t the world work the way I think it does?!”. It only brings a sense of momentary happiness.

    1. JTFaraday

      The Sola Scriptura approach of economic redemption “by monetary policy alone” is conventional wisdom only if your name is Amity Schlaes, (the high brow Ann Coulter).

      The real conventional wisdom is “put people back to work,” with the agent behind the verb left unspoken.

      Meanwhile, I don’t hear anybody saying raise interest rates, although we do hear a lot of (probably justified) pissing and moaning about how the failure to wipe out failed banks and start fresh is punishing savers.

      Which probably accounts for a lot of the impetus behind the Republican Party’s anti-Fed rumblings, because it’s the Fed that’s coddling the Banks.

      1. JTFaraday

        “The real conventional wisdom is “put people back to work,” with the agent behind the verb left unspoken.”

        The problem I have with the conventional wisdom is that no attention is paid to the quality of this work, whereas it seems to me that the poor and declining quality of work in the US contributed substantially to the situation in which we find ourselves today.

        People couldn’t afford the high cost of housing and/or didn’t have a reliable source of income, enabling them to make the payments. Then aggravate this with a monetary policy induced housing bubble.

        In short, just “putting people back to work” in any old shitrag “job” will not resolve our collective economic woes and thus, in its simplest formulation the conventional wisdom is wrong.

        1. Kokuanani

          I think “any old shitrag job” would look good to someone whose [however many] weeks of unemployment benefits have run out, or the recent college grad whose been unemployed for 19 months but whose student loan payments are breathing down his/her neck.

          Easy to be critical when the dire circumstances don’t affect YOU>

          1. JTFaraday

            First, you know nothing about me either way.

            Second, I consider that a problem to be resolved, rather than condemning people to a shitrag fate just because, theoretically, we’re not talking about me. Whereas you presumably would, just because it’s not you.

            The conventional wisdom is wrong. And so are you.

  7. kevinearick

    Relative to the escalating pension gap, he is tightening, which is all he can do without taking direct fiscal control. he made a bad, but understandable assumption when he took the job, that congress would have some, any, marginal utility.

    1. kevinearick

      Keep in mind that the important issue, the middl class abutment, its view of the multiplexer, is coming into foces. Liberals and conservatives are beginning to see that only your own can throw you under the bus, with false assumption , krugman and finn.

  8. Warren Celli

    “Is QE3 Yet Another Stealth Bank Bailout?”

    No, it is not.

    It is just another notch in the intentional ratcheting up of the global pressure meant to create the chaos and divisiveness that will soon put the uber rich sociopathic Xtrevilist few fully in control of a ruler and ruled world with the ruled engaged in a debilitating perpetual conflict with each other. Pernicious Greed for Destruction Xtrevilism has managed to con good old fashioned Vanilla Greed for Profit Evilism and their host victims into donning their own chains.

    You live by the sword and you die by the sword.

    You reap what you sow.

    It is comeuppance time, as all of those who bought into the ‘Greed and Evil’ are good meme and accepted bending the now scam ‘rule of law’ to allow; torture, illegal invasions of other nations under false pretenses, gross violations of the Civil Rights of the poor and homeless, etc., etc., etc.,… will now be pitted against those who did not.

    The selfish aberrant sociopathic Xtrevilist few have totally forsaken the Constitutional alliance and deceptively abandoned the marriage vows of citizenship. We will all soon realize that we are not only coming home to an empty house that has been looted of anything of value, but that house is on fire and our neighbors are all to busy fighting with each other to be of any assistance.

    Are we ready for the election boycotts yet?

    What is the exact date of Bankers Freedom Day?

    Deception is the strongest political force on the planet.

  9. jay

    A few years ago, the fed said low interest rates did not cause the housing bubble – “we found no evidence…..” is what Mr Bernanke said. Well he was lying then or lying now.
    I am surprised he thinks people won’t remember.

  10. Boston Scrod

    Is there any chance that the real reason for QE3 is to overpay the banks for grossly overvalued mortgage assets in order to keep the banks from ever having to face the consequences (and ensuing moral hazard) that would flow from a true transparent accounting of what most of this garbage is really worth? Nobody seems to be making this point so I may be out in left field on this one, but it still seems such a simple and obvious reason to me. If you can show me how I am wrong, please do.

    1. Jackrabbit

      I think that’s one of several things that the Fed achieves with this move:

      1. buy marked-to-fantasy mortgage assets
      2. sell foreclosed houses (more in the pipeline!)
      3. make it more likely that Bush tax cuts are extended
      4. some help for the economy (via fix-up of homes for sale, purchases of home furnishings and other items, etc.)
      5. help for Obama: fewer ‘bad economy’ headlines that otherwise as we approach the ‘fiscal cliff’

    2. Bert_S

      I haven’t seen any details of how the Fed intends to purchase these, but maybe I haven’t looked hard enough.

      I would hope like hell they buy them in the open market (remember the good old FOMC), instead of having banks quote their “first offer” directly to the Fed.

      But if the banks really do have to sell them at market price, then the mark-to-fantasy game is over and banks will need to adjust balance sheets accordingly.

      So this is an interesting and important distinction, and either I missed something, or the news isn’t out there yet.

  11. Jackrabbit

    Bank Bailout? Yes. But also political cover.

    The (first? and) last time the Fed talked about helping create jobs was before the Bush tax cuts were extended.

    Now the Bush tax cuts are due to expire at the end of this year. If they be extended or made permanent, it may largely be because of the confidence inspired by the Fed move.

    The Fed has put housing on sale…and the wealthy need their tax break to BUY.

  12. b.tom.darga

    enlighten me on something:

    In general, inflation is good for net debtors and bad for net creditors, correct?

    Why then wouldn’t inflation be a good thing to most Americans at this moment?

    1. Jeff

      It depends what is inflated. If wages go up, then yeah, sure, the relative debt burden of wage earners is diminished.

      But when there is a lot of slack in the labour market, as there is now, wage earners have no pricing power and their wages are not likely to move higher. In this environment, if there is inflation, it will be in the cost of housing and commodities (food, energy). And that just means wage earners are squeezed more, leading to reduced disposable income and thus reduced final demand.

  13. kevinearick

    The winners do not write history. only those with nothing better to do write history, easing their way…

  14. john bougearel

    Yves, you open this article with the query that “It’s difficult to puzzle out what Bernanke thinks he is accomplishing with QE3.” Perhaps the unintended consequence of Bernanke’s policy is no more complicated than a race to devalue the US dollar to thereby accelerate the emerging trend towards “re-shoring” and bringing back jobs to the US.

    Now, the way Bernanke framed his intent (to increase asset values so consumers feel better about themselves and will want to spend more) accelerating re-shoring to stimulate domestic job growth is not what he is aiming for. But, it may be what he gets.

    From Ambrose Pritchard: [China’s] country’s cost advantage over America – and others – has vanished.

    A new report by PricewaterhouseCoopers entitled “A Homecoming for US Manufacturing” claims it is now cheaper for whole clusters of US industry to produce at home, close to their markets. Firms are “re-shoring” to cut transport and inventory costs and take advantage of cheap shale gas. The weaker dollar has iced the cake. PwC said the US has clawed back a cost advantage of 2pc in steel output against China, at least for the North American market. Its “heat map” gives the US the edge in chemicals, primary metals, electrical products, machinery, paper, transport equipment, and wood, in that order. ”

    As for mortgage rates not coming down immediately in the aftermath of unlimited purchases of mortgage-backed securities, I think part of the reason may be attributed to the locked rates that homeowners seek to procure when buying a new home. Banks have to guarantee homeowners a locked rate, requiring them to hedge against rates going up. In this instance, rates are going down, so John and Suzy homeowner are probably out seeking better rates than their locked rates….all of which means home purchases will be delayed with the buyers seek to lock in even better rates…Near term, this new policy should hurt economic activity in the housing market. But mortgage rates should converge with the long-term treasury rates thereafter. Problem is, that convergence may be a result of long term rates going up in response to the inflationary consequences of these new policies…

  15. steelhead23

    Might I be so bold as to suggest that rather than working to serve the Fed’s legislated mandate (stable prices, full employment), Ben Bernanke is working to increase bank profits, just as hard as Dimon and Blankfein in order to pave the way to his future employment at one of these firms? What, you thought he would retire, or return to academia following his stint at the Fed? He’s the rainmaker and he’s certain there is a pot of gold at the end of the rainbow.

    1. F. Beard

      I should hope that Bernanke is more concerned about his reputation than mere money. People have to live with themselves, you know.

      A good name is to be more desired than great wealth, favor is better than silver and gold. Proverbs 22:1

      And then there’s the next world to be concerned about.

  16. Art Eclectic

    I think someone else summed it up perfectly: “All they’re trying to do is keep the lights on long enough to figure this economy thing out.”

    All of these moves are aimed at keeping the lights on and doors open while the mall of the American economy figures out how to get shoppers back in line at the registers.

  17. TC

    The Fed simply is managing the controlled disintegration of the physical and financial economy with fitting policy recognizing an historic imbalance that has created “excess capacity” everywhere whose shedding and re-absorption on the cheap (relatively speaking) only further forces the Fed’s hand to facilitate the process of controlled disintegration with evermore largesse (as employment conditinos worsen), which by the way (given an attempt to support financial processes responsible for creating historic imbalances in the first place) requires the mountain of [already insolvent] core debt securities to grow but larger (thus explaining the present day’s incessant drumbeat for expanding war on the Asian continent). Using the Fed’s globally misperceived altruistic intentions, a supra-national, imperial global banking dictatorship is being empowered, while sovereign power to resist this is being systematically destroyed by what otherwise is an arbitrary imposition, the likes of which central banks have been facilitating both in former good times, as well as today’s bad for the very sake of bankrupting national treasuries. One might rightly complain about lack of prosecution of criminal fraud throughout the banking system over the past decade, yet just how Alan Greenspan isn’t sharing a prison cell with Bernie Madoff really is the bigger mystery a soon-to-be-better-informed Congress (this out of utter necessity) will be forced to entertain.

  18. Schofield

    “ArkansasAngie says:
    September 17, 2012 at 6:23 am

    It kept the stock market high. A high stock market keeps the pensions up.

    The income effect? Well … income is transferred from savers.

    And … it allows the Fedury room to print money in synch with the EU

    But mainly it keeps the whole thing from becoming an election year hammer.

    Fed printing means I’ll have to vote against Obama. I would have voted 3rd party. Now I will hold my nose a vote Romney. Not becuase I like him, but simply because he isn’t Obama.”

    Well that makes as much sense as buying a new dog to teach it the old dog’s tricks! Still get the same ol’ tricks!

  19. sierra7

    Bernanke is experiencing Paulsen’s “Bazooka Moment”….I think he’s scaired to death……
    I agree with many who see this as an extension of more bank bailout process……
    The kind of “capitalism” we practice, destruction in the long run will now turn it’s ugly head on our system…..

  20. Schofield

    Why do you have to give the banks reserves when they’ve always just made the loans and the Fed has no choice but help accomodate them in finding the reserves? Bernanke can’t wriggle out of that one surely except by saying he never understood that. In which case why is he in the job. Nope, Bernanke is the business of making the Banksters whole again so they can blow more speculative bubbles and all at the expense of the rest of the nation. The Dis-United States rotting from the inside out! How the Chinese Communist Party leaders are laughing their socks off!

  21. MacCruiskeen

    My credit union lowered their mortgage rates by an eight of a percent within a couple of days of the Bernanke’s announcement. Why are y’all still dealing with banks?

  22. Doug Terpstra

    There’s nothing stealthy about announcing you’re going to buy more bankster MBS dreck at $40 billion per month from now until Judgment Day, even while stocks are soaring, housing has been declared to be “in recovery” by every approved authority, and BLS unemployment is “falling” steadily. Many commenters said as much here yesterday under Kervick’s post on Shamanistic Economics. All speculation about the efficacy of supposedly well-intended monetary policy is pure distraction — the theatrical atmospherics of a witchdoctor — dung-smoke and entrails, rattling shells and bones, and flapping feathers. But as craazyman wrote yesterday, the Fed gives shamans a bad name; few shamans are so transparently self-serving.

    The Criminal Reserve Cartel is not remotely concerned about jobs, except as optics. QE3 is simply an interminably-deferred postponement of extend-and-pretend, mark-to-myth, as Jackrabbit noted, just more can-kicking and officially-sanctioned control fraud. It is another open-ended wealth transfer to rentier cronies, electioneering, and the confederation of absolute power. It’s time to finally renounce the naïve premise that any of these antebellum robber barons have any good intentions.

    1. Warren Celli

      Doug Terpstra said; “It’s time to finally renounce the naïve premise that any of these antebellum robber barons have any good intentions.”

      Bingo back at ya Doug! Its the Noble Lie dressed in a suit of avoidance behavior enabling fake tits, and the rubes, both ignorant and aware, are sucking away as the robo-cop curtain of technological oppression comes down.

      What day does Banker Freedom Day fall on?

      Deception is the strongest political force on the planet.

  23. David Chaney

    I am possibly naive, but the net effect of the Fed buying mortgage bonds appears to provide yet more liquidity to hedge funds and other speculators to buy people’s foreclosed homes in bulk or otherwise, and hasten the fall of the former owners into renting from the crooks – if they’re lucky – or homelessness. Not to mention the added short term play of running up commodity prices while you wait for the new confiscation program to roll out.

    I understand from this esteemed site that the Bank of England started a program to help distressed homeowners KEEP their homes. That of course is not in the implied Fed charter which describes the purpose of the Fed is to transfer all money from the masses to the Banks and their beneficiaries.

    As Don Rumsfeld said after 9/11, realizing he had scored an e-ticket to do whatever the neo-cons wanted: “Let’s roll this up.”

    The Fed will be 100 years old next year and to celebrate they are taking advantage of the opportunity they provided themselves with the 2008 crisis finally accelerate their massive financial transfer from the lower and middle classes to themselves.

    The Fed’s motto “Happy Birthday to Me and my Member Banks.”

  24. Cynthia

    The whole premise that QE is anything other than a bank bailout is laughable. The whole premise that it will stop once the banks are solvent is also laughable. Now the only way banks make a profit is by selling garbage to the Fed.

  25. Doug Terpstra

    “Laughable” indeed, Cynthia.

    As Charles Hugh Smith put it

    “The Fed Has Failed, Failed, Failed”

    “Bernanke knows QE3 will fail to revive the real economy, but he doesn’t care; his real job is to protect the Fed’s political power and the banking sector’s wealth.”

    “. . . Bernanke’s ‘all-in’ bet has a political propaganda angle . . . Since it is clear that the economy is sliding into recession, Bernanke is going all-in now as a pre-emptive strike against any critics who might later claim he ‘didin’t do enough.’ He knows that QE3 won’t boost incomes or jobs, but he launched it as a form of defensive policy against the inevitable criticism in 2013 that the Fed ‘didn’t do enough.’

    “Thanks to his defensive launch of QE3, he can shrug and sigh, “We did everything possible.” The blame will fall elsewhere, and the Fed will have a free hand to continue its real purpose, the defense of bank wealth.”

    “That’s the plan, but the Fed is failing here, too. Tasked by the financial Aristocracy to stave off any political rebellion that might threaten their chokehold on the U.S. economy and machinery of governance, the Fed is fanning the flames of just such an insurrection by ramping up inflation even as median household incomes plummet.”

    Compelling charts

  26. Eric377

    I bit unfair to say that Obama has no interest in fiscal stimulus measures. His administration has proposed some measures that clearly look well-targeted, but because they were well-targeted and therefore likely to have had positive results, the current congress was not inclined to enact them. There is darn little in the way of potential fiscal stimulus does not require congressional action. Talking about the executive and his bankster friendly advisors is a misdirection…is it a purposeful one?

  27. The Dork of Cork

    The guys holding the $ money claims have claims on a Junk economy created when they built the interstate freeway system all those years ago.

    Its a linear energy intensive non nodal trash can economy.

    The only way they can maintain the value of the fiat is to destroy what little remains of the place and turn it into the capital holders present consumption.
    That is the reason for QE , nothing more.

    They just don’t know , or more likely don’t want to know how to spend fiscal funds wisely.
    Junk in , Junk out ,Junk in , Junk out and so on and on.

    BB is not interested in real productive capacity – WTF are MBS and how can they increase basic life support ?
    He sees the economy as a collection of debt contracts which is quite funny really.
    Energy inputs and outputs are of no consequence when you have a fiat reserve currency I guess.

    Look at the rail passenger numbers in this once Great City , its quite sad really.

    There are village stations in the North of Scotland with higher passenger numbers then that.

    How many people fly from Pittsburgh to New York rather then get the flippen train ?
    The entire structure of the US and Euro periphery is a product of credit hyperinflation where the input and output functions are all fucked up.

    They have played their hand too well its seems – using external oil to bypass local labour in former coal union towns and extract a Asian labour arbitrage using very very very long supply chains.

    It does not work too well at $100 oil…. although I guess its still working for the top 5 %.
    What happens when it only works for the top 1% … what then….do we engage in greater Austerity for the Greater good of the top 1%.
    Their entire financial system has been a very dark absurdity since day one.

  28. Jim

    No difference between Bernanke and Draghi. Both are bailing out the banks.

    With the difference that many progressives in the US support Draghi, while condemning Bernanke for doing the same.

  29. Mark

    Giving the banks 0% rates who then raised credit card rates on consumers to 29% made them tons of money but did nothing for the 99% except increase the rent. Add to that the terrible situation that student debt has created, the higher cost of energy and food and you are furthering the transfer to the rentiers. If we could lower interest rates for consumers, mortgage holders and students to near zero percent that would do a lot more than increasing bank profits and stock prices.

  30. ArmchairRevolutionary

    I think a better way to ask the question would be “Is the QE3 Bailout Stealthy?” To which, I would answer, “No.”

  31. Sanford Calef

    OK, I may be out of my depth in this discussion.
    However…..this seems more like money laundering to me.

    If the Fed intends to buy 60 billion in mortgages from their favored banks….
    you gotta expect those banks to sell their junk to the Fed.
    and keep(any) preforming loans.

    The banks can get their balance sheets cleaned up
    by transferring their “problems” over to the Fed.
    and I suppose in the end…to us.

    Again I am out of my depth in this.
    But am I wrong?

  32. Chauncey Gardiner

    Interesting question. What Fun!!… trying to again guess the true reasons behind the latest iteration of central bank policy. The cost is high, but I’ll have a go at it since the losses have already occurred, although perhaps not been recognized, and we’ll all likely be paying for them anyway in some form or other.

    First, I believe these policies are never implemented for only one reason. As far as being all about support of the incumbent in the presidential election, this program was known to be unpopular with the public (but VERY much desired by Wall St.) before it was announced; so I don’t consider this factor to be a strong motivator. I also consider it unlikely that further increases in stock and bond prices are high on the Fed’s priority list at this time; i.e., been there, done that, with “Wealth Effect” objectives from a market ramp already largely achieved.

    Rather, I consider it somewhat more likely that this QE3 program is being implemented in an effort to anticipate a possible upcoming need for support of deeply troubled banks in the Eurozone or China that pose systemic risk, to gradually extricate U.S. banks from their MBS problems, as Yves has discussed, and possibly to address other prospective derivatives and deleveraging issues. Further, there may be other reason(s) for undertaking this policy at this time that we are unable to discern due to inadequate information, such as generation of additional systemic liquidity ahead of anticipated and potentially disruptive geopolitical developments. In my view, it has been abundantly demonstrated over the past four years that it is Liquidity that kills financial institutions, not insolvency.

    Regardless, I believe the reasons given publicly for QE3 are just another case of misdirection. With this move, the Fed has literally enabled the Fed’s owners to spin their MBS dross into gold. Alchemy at its finest.

  33. bhikshuni

    “The 10-year Treasury note has a yield of 1.87 percent, down from 4.2 percent in 2005. These are huge declines.

    Yet the cost of credit card loans has hardly budged. The Fed’s own data shows that average credit card interest rate was 12.06 percent earlier this year; in 2005, it was 12.45 percent…”

    Let’s not forget the other negligence of the US gov’t in failing students with outrageous 7.9% interest rate on the Federal Direct PLUS student loan! And is someone hoping for an increase in consumer demand for housing (or any spending “confidence” from college grads?

  34. Tyzao

    There may be some truth to the whole not being staffed up thing. Most of these banks use 20th century workers for 21st century procedure. If I was a smart Occupy Guy, I would start spamming the mega-banks with all kinds of bogus applications and I guarantee you those 20th century workers will start smoking again.

    At some point the industry is going to have to accept that this is not the 1999 or 2000 Tour-de-France or Mark McGwire or Barry Bonds home run race. The age of Markets backed by Performance Enhancing Corruption is over. It is soon to be over in Greece, Italy, Spain and the USA. Come clean and start playing fair; it is the only way.

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