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cost between $8 and $15 trillion depending on what you're counting (total deficits + Fed bailouts) I always cringe when somebody calls the Fed's actions bailou

cost between $8 and $15 trillion depending on what you're counting (total deficits + Fed bailouts) I always cringe when somebody calls the Fed's actions bailouts. These are asset purchases by the Fed versus injecting cash into the monetary system. The Fed will have to unwind these at some point in the future. But essentially, what the Fed has done is that it has made a market for securities nobody was willing to make a market for. Net "bailout" performed by the Fed: zero. Actually that's wrong - the Fed added around $78 billion worth of profit via its open market operations to the Treasury last year (it's obliged to do so after deducting servicing costs/salaries etc.) Pray, what are the "natural" mortgage rates you're talking about - ie you mean rates absent Fed intervention (via Operation Twist)? There wouldn't be a mortgage rates market in existence if the Fed were not there to make one! And no, you're not imploding like the EU. Their banks are woefully undercapitalized and can't lend to the corporate sector. Plus, they have one monetary policy and 17 different fiscal policies - that simply doesn't work! Your banks and your corporate sector are flush with money. It's your consumers who are broke. Even then, they aren't broke - they are just not making long-term investments(ie purchasing durable goods) as credit has dried up and there is no good quality collateral left in the market against which people are willing to lend. Homes used to be the collateral earlier on - but that's no longer the case. That's what the Fed is trying to do - lower mortgage rates (ie assume credit risk on your behalf - it can do so because it can print money - inflation is not a risk in this economy) to enable credit to flow in the economy so that the consumer can start becoming active again. Deleveraging is painful - but it's not the end of the world as you've portrayed it. Edit: fixed typos

adventureful 14y ago
The Fed's actions were extreme bailouts. They've been busy bailing out almost everybody: home owners, Wall Street, Europe, the Treasury, the states. Net bailouts performed by the Fed: trillions http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-un... They gave banks and others at least $7.7 trillion and there is zero proof that it was paid back. Citi had at least a $1 trillion blackhole on their balance sheet, and there is no possibility they were able to fill it. Bank of America was in the same situation, and their profits could never fill that. The Fed took over trillions in toxic waste mortgages to bail out the banks, and most of those 'assets' still sit on the Fed's balance sheet. I'm sure the money supply continuing to skyrocket means the Fed isn't bailing anybody out. Surely those trillions aren't going toward bailouts for the government, Wall St, big banks, or the housing market. http://www.shadowstats.com/charts/monetary-base-money-supply http://www.shadowstats.com/charts/monetary-base-money-supply The Fed is currently bailing out the US Government by buying 95% of all long term govt paper. The US Treasury has been bailing out California among other states, by using the Fed money. The US Government is completely insolvent without the Fed bailouts, it would have to slash 1/3 of all spending just to correct the imbalances in the system if the Fed stopped the QE programs. The Fed is bailing out home owners, investors, realtors 24/7 using trillions in QE to push rates lower to prop up the housing market. The Fed is pushing risk into equities and out of paper by driving rates down, which is providing a bailout to big institutional investors by keeping the stock market artificially high. It's a bailout bonanza. Natural mortgage rates would be the mortgage rates you'd get when you remove all Federal Reserve manipulation of short and long term rates. That is, when they stop all QE / monetization programs that are designed to specifically hold rates down, thus we have sub 4% 30 year mortgage rates. It would be something closer to a historical norm, 6% to 8% would be a lot closer to normal based on the last 50 years, than 4%, for example. But if you know anything about any of this, you already know that.
- photon137 14y ago
  Bernanke had to do a lecture series (as part of a PR-initiative, I assume - but he's an academician as well) explaining the Fed's actions to those who may not be that well-versed with macroeconomics or how the FOMC works. You should read this before making any "bailout" claims: http://www.federalreserve.gov/newsevents/files/bernanke-lecture-four-20120329.pdf http://www.federalreserve.gov/newsevents/files/bernanke-lect... Edit: The lecture series in full for those who might be interested: http://www.federalreserve.gov/newsevents/lectures/about.htm http://www.federalreserve.gov/newsevents/lectures/about.htm It made very insightful viewing/reading even for us who are involved in the financial markets.
  - carsongross 14y ago
    Appeals to authority... check. Courtiers reply... check. Dismissive passive aggressive attitude... check. Good job, you hit 'em all. http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm http://www.federalreserve.gov/monetarypolicy/bst_recenttrend... Good luck unwinding that, kids. And that's just what they are telling us.
    - photon137 14y ago
      The various Feds' open market operations and reverse repo operations inject/sterilize billions of dollars every day from the markets. $3 trillion may seem like a big amount on the balance sheet to unwind - but that kind of liquidity can be soaked out of the system pretty easily (if done carefully) once the economy gets going and the Fed is able to raise rates (ie secondary credit markets begin to function well enough - e.g. the traditional GSE-sponsored lending/commercial-paper lending etc). Edit: I am trying to make a valid clarification in this thread. Your sarcasm is unwarranted.
      - carsongross 14y ago
        _shrug_ Again, that's only what they are telling us about. Pulling a couple trillion out of the economy is going to absolutely taco it (that's thousands of those billions you mention) since we are effectively an infinitely leveraged fractional reserve system now, even ignoring derivatives. I'd be more sympathetic to your pat-us-on-the-head attitude if the mainline economists had been right about anything for the past decade. There's a whole slew of economists who actually got the debt crisis correct and might be worth looking into, starting with Steve Keen. The federal reserve has been hiding it's destruction of the average person's purchasing power behind academic rhetoric and obfuscation for over 100 years now, with the aid and abetment of the economic mainstream and the financial world. Don't assume that because we don't agree with you we don't understand what you are saying. We just don't believe it.
damoncali 14y ago
They dumped truckloads of cash on banks who were rather suddenly (??) severely undercapitalized. That's a bailout to most people.
- photon137 14y ago
  These were loans - albeit on very easy terms, I agree. The difference between a government bailout (which the Treasury did, in fact) and a Fed's "lender-of-last-resort" loan is crucial. The former involves recapitalization of the bank with an equity stake transfer to the Treasury while the latter is just a credit/repo line which allows for potentially "bad" or illiquid assets to be pledged as collateral for a loan. Again, this is a credit-risk transfer to the Fed rather than a bailout. Exactly in the same way as the banks took on credit-risk by lending to people with poor credit histories (although the intentions of the lenders were totally different in this case - greed being the dominant factor).
  - damoncali 14y ago
    That is a distinction without a difference.
    - photon137 14y ago
      I agree - I didn't explain this very well. The former utilizes taxpayer money, the latter doesn't. The first is an all-out investment, the second, a loan. Also, the portion of the cash that is not used by the bank is usually deposited back at the Fed in the bank's excess reserve account (on which the Fed has now begun paying a small interest - in order to avoid capital destruction). The portion that is used forms part of the liquidity injected into the overall system - which is the Fed's original intention anyway. The Fed has a mandate to ensure financial stability by providing such a loan facility (why it didn't do so for Lehman - and whether it neglected its duty - is still a very controversial topic) - so I wouldn't consider a statutory duty to be a discretionary bailout.
      - damoncali 14y ago

adventureful 14y ago

The Fed's actions were extreme bailouts. They've been busy bailing out almost everybody: home owners, Wall Street, Europe, the Treasury, the states. Net bailouts performed by the Fed: trillions http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-un... They gave banks and others at least $7.7 trillion and there is zero proof that it was paid back. Citi had at least a $1 trillion blackhole on their balance sheet, and there is no possibility they were able to fill it. Bank of America was in the same situation, and their profits could never fill that. The Fed took over trillions in toxic waste mortgages to bail out the banks, and most of those 'assets' still sit on the Fed's balance sheet. I'm sure the money supply continuing to skyrocket means the Fed isn't bailing anybody out. Surely those trillions aren't going toward bailouts for the government, Wall St, big banks, or the housing market. http://www.shadowstats.com/charts/monetary-base-money-supply http://www.shadowstats.com/charts/monetary-base-money-supply The Fed is currently bailing out the US Government by buying 95% of all long term govt paper. The US Treasury has been bailing out California among other states, by using the Fed money. The US Government is completely insolvent without the Fed bailouts, it would have to slash 1/3 of all spending just to correct the imbalances in the system if the Fed stopped the QE programs. The Fed is bailing out home owners, investors, realtors 24/7 using trillions in QE to push rates lower to prop up the housing market. The Fed is pushing risk into equities and out of paper by driving rates down, which is providing a bailout to big institutional investors by keeping the stock market artificially high. It's a bailout bonanza. Natural mortgage rates would be the mortgage rates you'd get when you remove all Federal Reserve manipulation of short and long term rates. That is, when they stop all QE / monetization programs that are designed to specifically hold rates down, thus we have sub 4% 30 year mortgage rates. It would be something closer to a historical norm, 6% to 8% would be a lot closer to normal based on the last 50 years, than 4%, for example. But if you know anything about any of this, you already know that.

photon137 14y ago
Bernanke had to do a lecture series (as part of a PR-initiative, I assume - but he's an academician as well) explaining the Fed's actions to those who may not be that well-versed with macroeconomics or how the FOMC works. You should read this before making any "bailout" claims: http://www.federalreserve.gov/newsevents/files/bernanke-lecture-four-20120329.pdf http://www.federalreserve.gov/newsevents/files/bernanke-lect... Edit: The lecture series in full for those who might be interested: http://www.federalreserve.gov/newsevents/lectures/about.htm http://www.federalreserve.gov/newsevents/lectures/about.htm It made very insightful viewing/reading even for us who are involved in the financial markets.
- carsongross 14y ago
  Appeals to authority... check. Courtiers reply... check. Dismissive passive aggressive attitude... check. Good job, you hit 'em all. http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm http://www.federalreserve.gov/monetarypolicy/bst_recenttrend... Good luck unwinding that, kids. And that's just what they are telling us.
  - photon137 14y ago
    The various Feds' open market operations and reverse repo operations inject/sterilize billions of dollars every day from the markets. $3 trillion may seem like a big amount on the balance sheet to unwind - but that kind of liquidity can be soaked out of the system pretty easily (if done carefully) once the economy gets going and the Fed is able to raise rates (ie secondary credit markets begin to function well enough - e.g. the traditional GSE-sponsored lending/commercial-paper lending etc). Edit: I am trying to make a valid clarification in this thread. Your sarcasm is unwarranted.
    - carsongross 14y ago
      _shrug_ Again, that's only what they are telling us about. Pulling a couple trillion out of the economy is going to absolutely taco it (that's thousands of those billions you mention) since we are effectively an infinitely leveraged fractional reserve system now, even ignoring derivatives. I'd be more sympathetic to your pat-us-on-the-head attitude if the mainline economists had been right about anything for the past decade. There's a whole slew of economists who actually got the debt crisis correct and might be worth looking into, starting with Steve Keen. The federal reserve has been hiding it's destruction of the average person's purchasing power behind academic rhetoric and obfuscation for over 100 years now, with the aid and abetment of the economic mainstream and the financial world. Don't assume that because we don't agree with you we don't understand what you are saying. We just don't believe it.

damoncali 14y ago

They dumped truckloads of cash on banks who were rather suddenly (??) severely undercapitalized. That's a bailout to most people.

photon137 14y ago
These were loans - albeit on very easy terms, I agree. The difference between a government bailout (which the Treasury did, in fact) and a Fed's "lender-of-last-resort" loan is crucial. The former involves recapitalization of the bank with an equity stake transfer to the Treasury while the latter is just a credit/repo line which allows for potentially "bad" or illiquid assets to be pledged as collateral for a loan. Again, this is a credit-risk transfer to the Fed rather than a bailout. Exactly in the same way as the banks took on credit-risk by lending to people with poor credit histories (although the intentions of the lenders were totally different in this case - greed being the dominant factor).
- damoncali 14y ago
  That is a distinction without a difference.
  - photon137 14y ago
    I agree - I didn't explain this very well. The former utilizes taxpayer money, the latter doesn't. The first is an all-out investment, the second, a loan. Also, the portion of the cash that is not used by the bank is usually deposited back at the Fed in the bank's excess reserve account (on which the Fed has now begun paying a small interest - in order to avoid capital destruction). The portion that is used forms part of the liquidity injected into the overall system - which is the Fed's original intention anyway. The Fed has a mandate to ensure financial stability by providing such a loan facility (why it didn't do so for Lehman - and whether it neglected its duty - is still a very controversial topic) - so I wouldn't consider a statutory duty to be a discretionary bailout.
    - damoncali 14y ago