Wow! Central Banker Apologizes To America!

You’ve probably never heard of Andrew Huszar. I had never heard of him before either until I read his article in yesterday’s Wall Street Journal (thanks to BadBlue News).

From the article we learn that Mr. Huszar worked for the Federal Reserve for seven years until early 2008 when he left to return to the private sector. He claims he left, in part, because he felt the Fed was losing its independence and had become too aligned with the interests of Wall Street. A few months later, Mr. Huszar said he received an unexpected phone call asking him to come back to the Fed to manage the Fed’s plan to buy $1.25 trillion in mortgage backed bonds in twelve months. This, of course, was Ben Bernanke’s Quantitative Easing plan, version QE1.

The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed’s central motivation was to “affect credit conditions for households and businesses”: to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative “credit easing.”

So, let’s look at a few excerpts from Mr. Huszar’s article and we’ll start with his amazing apology to America.

I can only say: I’m sorry, America. As a former Federal Reserve official, 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.

{…}

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.

It wasn’t long before my old doubts resurfaced. 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.

{…}

Trading for the first round of QE ended on March 31, 2010. 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.

You’d think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang Schäuble, immediately called the decision “clueless.”

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.

{…}

Unless you’re Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.

As for the rest of America, good luck. 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.

I guess we should thank Mr. Huszar for apologizing, but why did he wait so long? David Stockton has been saying much the same thing for a long time as reported here at Zero Hedge:

Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the thread of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history.

David Stockman, The Great Deformation

A cynic might think the Federal Reserve Bank (and all other central banks) are more interested in their owners, the TBTF banks on Wall Street, than in the citizens on Main Street. In case you haven’t guessed, I am a cynic.

Well, that’s what I’m thinking. What are your thoughts?

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16 thoughts on “Wow! Central Banker Apologizes To America!

  1. Woodrow Wilson was one of the greatest villains in American history. Not only did he get us involved in other people’s wars but he also brought us the Federal reserve and the 17th amendment.

    Burn in hell forever Mr. Wilson.

  2. I hadn’t read this article and now I will — good job! We are really victims in this country; I’d like us all to rear up and let these money-grubbing thieves know what we really think about it all. Get out the pitchforks!

  3. For whatever reason I recall this piece of trivia, during Clinton’s 2nd state of the union, Alan Greenspan sat next Hillary Clinton in the gallery. The press made comments how unusual this was, that the Fed was to be apolitical. While we rightly blame Wilson, I suggest it was Greenspan and Clinton that took the punch bowel and started the drunken spree we have been on.

  4. It’s amazing to me how disconnected Wall Street is from Main Street. Record highs on Wall Street don’t do anything for the economy as a whole. It has long seemed to me like there is a separate game being played, disconnected from performance of companies (whose share price is supposed to be a direct reflection of performance, or at least anticipated performance), and now connected instead to chicanery between the federal government, the Fed, and big banks. The problem, of course, being that regular Main Street people are also involved, thinking that they’re buying something other than the result of chicanery, and chicanery will always collapse at some point. But they’ve enshrined TBTF now, so when the house of cards falls, it won’t be the participants in the chicanery that feel the pain, it won’t even just be the people who thought they were buying something real (though they’ll get burnt badly), instead, even those of us who avoided the whole cluster-fark will be burned because we’ve been made the guarantor of the chicanery.

    Hard to believe that in conditions like this it is difficult to get an economy to actually grow so that Main Street actually feels it. (snark!)

    1. Some say build a bunker and stock it with everything you will need for several months. Some say buy gold. Some say go Galt in some other part of the world. And, some say it will all be fine when capitalism is finished for good. 😦

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