4 ms·

Not handing out, but lending out. Bailing out households would be a far more political decision. The Fed could impose constraints on banks participating in TAR

• maxerickson 10y ago
  In addition to the loans and direct investments in banks, there was a large asset purchase program: https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investment_Program_for_Legacy_Assets https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investm... It can be cost neutral by way of selling the assets back to the market, but that isn't happening at any sort of rapid clip. The Fed currently has ~$1.8 trillion of mortgage backed securities. https://fred.stlouisfed.org/series/MBST https://fred.stlouisfed.org/series/MBST The bailout targeted the entire economy. Imagine the pinch we'd be in if housing all of the sudden wasn't too expensive to buy (and thus not a glorious asset for all the people that have it).
  • jevgeni 10y ago
    Thank you for the insight! I haven't considered "sector targeting". 1.8 trillion USD MBS is a bit unsettling, I must say.
    • maxerickson 10y ago
      It's "only" about 12% of the market. https://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm https://www.federalreserve.gov/econresdata/releases/mortouts...
• hammock 10y ago
  TARP was a legislature-led bailout, has nothing to do with the Fed. Parent is talking about the Fed bailout, which exists under a number of alphabet soup names (like PPIP), and continued under QE1, QE2, QE3, etc. I wish there was a good do-it-all source I could point you to to educate you on what happened, unfortunately I am blanking at the moment.
  • jevgeni 10y ago
    I am not that familiar with the exact schemes how QE/bailouts were done in the U.S., so thank you. But can one then say that QE programs were more political than TARP?
    • metaphorm 10y ago
      they were both political, but TARP was an act of legislation passed by elected political representatives whereas QE* was enacted by an unelected technocrat who made the decision without being politically accountable for it. now, maybe it was the right call and the (nominally) non-political nature of the Fed board is a necessary arrangement to allow for these decisions to be made where a politically accountable body could never be expected to do so. or maybe it wasn't the right call and the political act of selecting who would prosper and who would suffer was made by a man without an appropriate mandate to make a decision that so profoundly affected millions of people.
• metaphorm 10y ago
  lending out at rates that were designed to nearly guarantee profitable returns for those companies. it was, in essence, an exceptionally huge windfall profit that they "earned" by nearly going bankrupt and taking the whole global finance system to the brink with them. it was ransom money, in other words. you're right that the practical concerns about trying to address the borrowers were significant and discouraged the Fed from even trying it (and congress wouldn't go near it either). however, that there is now a long-simmering batch of political backlash and ill-will should surprise nobody. Bernanke broke the moral hazard limit and now we're suffering the consequences in our national polity and discourse.