Reply #38: Grand Theft Benny By Mike Whitney

[Demeter]

http://www.informationclearinghouse.info/article27989.htm

Here's the scoop: When Fed chairman Ben Bernanke initiated the first round of Quantitative Easing (QE), the stated goal was to revive the flagging housing market by purchasing $1.25 trillion in mortgage-backed securities (MBS) from the country's biggest banks. The policy was a ripoff from the get go. No one wanted these mortgage stinkbombs that were stitched together from subprime loans to unqualified applicants. But because the banks were already busted--and because the $700 billion TARP was barely enough to keep the ventilator running until the next bailout came through-- the Fed helped to conceal its real objectives behind an elaborate PR smokescreen. In truth, the Fed must have colluded with the banks to move the toxic assets off their books (and onto the Fed's balance sheet) with the proviso that the banks withhold foreclosed homes from the market.

Sounds pretty fishy, eh?

By keeping the extra homes off-market, supply went down, demand went up (slightly), and housing showed signs of a rebound. The withholding of supply was synchronized with the Firsttime Homebuyers credit, which provided an $8,000 subsidy to new home buyers. This pumped up housing sales and further concealed what was really taking place, which was a gigantic transferal of public wealth to the banks in exchange for putrid assets that no one wanted. Naturally, the process kept the market from correcting and added vast numbers of foreclosed homes to the shadow inventory.

During this same period, the Fed worked out an agreement with Congress to pay the banks interest on the reserves it created at the banks. (Note: The MBS were exchanged for reserves) At the time, many experts questioned the wisdom of the Fed's plan saying that the reserves would not lead to another credit expansion. And they were right, too. In fact, it didn't stop the slide in housing either which resumed with gusto as soon as QE ended and the banks started dumping more foreclosed homes onto the market...

...
So, now we have irrefutable proof that the Fed was simply handing out money to the banks. More importantly, the report shows that this was not just a few isolated incidents, but a pattern of abuse that increased as the needs of the banks became more pressing. In other words, giving away money became policy. Is it any wonder why the Fed has fought so ferociously to prevent an audit of its books?