Former Federal Reserve Official: Sorry About that Quantitative Easing

A few days old but just came to my attention this morning, a

Wall Street Journal apologia from former Federal
Reserve worker Andrew Huszar (he “managed the Federal Reserve’s
$1.25 trillion agency mortgage-backed security purchase
program”) on how QE wasn’t necessarily good for me or
thee:

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….

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.”

Huszar was called in to help the Fed navigate new waters of
economic intervention:

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.

Huszar says he was unhappy with that result, and quit.

Where are we today? The Fed keeps buying roughly $85 billion in
bonds a month…

And the impact? Even by the Fed’s sunniest calculations,
aggressive QE over five years has generated only a few percentage
points of U.S. growth. By contrast, experts outside the Fed, such
as Mohammed El Erian at the Pimco investment firm, suggest that the
Fed may have created and spent over $4 trillion for a total return
of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S.
economic output). Both of those estimates indicate that QE isn’t
really working.

Reason on
quantitative easing.