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But they are not "winners" in that they would have lent the money at even higher rates, if they did not obtain lower-cost funding themselves. The lending rate i

But they are not "winners" in that they would have lent the money at even higher rates, if they did not obtain lower-cost funding themselves. The lending rate is subject to supply-demand competition. If there was less supply of capital then the lending rate would be higher since demand did not change. On the other hand, the banks did redeposit much of the money back with the Fed. If that were the argument then there could be a more fruitful discussion.

pdonis 8y ago
> the banks did redeposit much of the money back with the Fed They didn't have to "redeposit" it. The money the Fed prints goes straight into the banks' accounts at the Fed when the Fed uses it to buy bonds from the banks. The reason all that money is still in those accounts is because the banks did nothing at all, instead of increasing their outstanding loans, which was what the Fed predicted they would do (and which was the reason for the QE in the first place).
- pishpash 8y ago
  The "reason" for QE was not for the banks to lend out all of their new funds. That would have caused inflationary pressures immediately. They did lend a fraction. That it was not a bigger fraction should tell you something about the perceived risks and risk appetite at the time. Recall the opening complaint was that the banks made easy money by lending cheaply obtained funds. If they could do that then there should have been no excess reserves. Both cannot be true. As for QE, increasing lending from reserves didn't turn out to be the only or even main channel of effect. Driving down yields was the main channel. In that sense it was indirect and inefficient for the amount of reserves injected, but not ineffective. In the end the spreads collapsed and money filtered out (not only from banks but from every holder of capital) from less risky investments to more risky investments, increasing the supply of capital to everyone. If you had to complain, it was that money took the longest time to reach the riskiest borrowers and that we're all on the hook for being front-run on Fed news (Fed paid more than they should to buy those bonds) [1]. That was unfair, not the rates that borrowers had to pay. [1] On the other hand, by pre-announcing, they probably needed to buy fewer bonds over all as the market moved itself on the Fed's credibility.
  - pdonis 8y ago
    > The "reason" for QE was not for the banks to lend out all of their new funds. No, just the 97% of them that banks (at least those in the "upper reserve tranche" at the Fed, which is basically any bank you've ever heard of) are allowed to lend out. But in fact banks lent out virtually none of it. > They did lend a fraction. A tiny fraction (a few percent). > That it was not a bigger fraction should tell you something about the perceived risks and risk appetite at the time Which was exactly the point the Fed did not get at the time. (In the Fed's obfuscatory language, the "money multiplier" decreased drastically, which they had not expected.)

pdonis 8y ago

> the banks did redeposit much of the money back with the Fed They didn't have to "redeposit" it. The money the Fed prints goes straight into the banks' accounts at the Fed when the Fed uses it to buy bonds from the banks. The reason all that money is still in those accounts is because the banks did nothing at all, instead of increasing their outstanding loans, which was what the Fed predicted they would do (and which was the reason for the QE in the first place).

pishpash 8y ago
The "reason" for QE was not for the banks to lend out all of their new funds. That would have caused inflationary pressures immediately. They did lend a fraction. That it was not a bigger fraction should tell you something about the perceived risks and risk appetite at the time. Recall the opening complaint was that the banks made easy money by lending cheaply obtained funds. If they could do that then there should have been no excess reserves. Both cannot be true. As for QE, increasing lending from reserves didn't turn out to be the only or even main channel of effect. Driving down yields was the main channel. In that sense it was indirect and inefficient for the amount of reserves injected, but not ineffective. In the end the spreads collapsed and money filtered out (not only from banks but from every holder of capital) from less risky investments to more risky investments, increasing the supply of capital to everyone. If you had to complain, it was that money took the longest time to reach the riskiest borrowers and that we're all on the hook for being front-run on Fed news (Fed paid more than they should to buy those bonds) [1]. That was unfair, not the rates that borrowers had to pay. [1] On the other hand, by pre-announcing, they probably needed to buy fewer bonds over all as the market moved itself on the Fed's credibility.
- pdonis 8y ago
  > The "reason" for QE was not for the banks to lend out all of their new funds. No, just the 97% of them that banks (at least those in the "upper reserve tranche" at the Fed, which is basically any bank you've ever heard of) are allowed to lend out. But in fact banks lent out virtually none of it. > They did lend a fraction. A tiny fraction (a few percent). > That it was not a bigger fraction should tell you something about the perceived risks and risk appetite at the time Which was exactly the point the Fed did not get at the time. (In the Fed's obfuscatory language, the "money multiplier" decreased drastically, which they had not expected.)