From day one, its been opined by some research papers that quantitative easing is a disaster for the US economy. That it has one chance in thousand to create meaningful jobs in the economy. Instead, all it will end up doing is further increase the rich-poor disparity. Looks like an insider in the US Fed also thinks the same way. And this insider is a gentleman named Andrew Huszar. Turns out from 2009 to 2010, Huszar was responsible for managing the Fed's purchase of more than US$ 1 trillion worth of mortgage-backed securities. And what does Huszar think of this move? Well, the quantitative easing, he argues, 'has been the greatest backdoor Wall Street bailout of all time'.
Of course it can't be anything else. Anyone who has a good understanding of the crisis knows that most Wall Street firms should have been wiped out by now given the losses they had racked up. What has transpired though is the total opposite. The US Fed opened the floodgates like never before, making the same Wall Street banks that were teetering on the brink of a collapse, one of the most profitable entities in the world. And the sad part is the US Fed seems far from done. It seems hell bent on rolling out one QE after another, ignorant of the pain it would eventually cause.
Once considered too-big-to-fail, the big US banks have been given a dose of reality by the renowned rating agency Moody's. In its latest report, the agency has downgraded the rating four big banks by one notch. So what has prompted the change in the stance? One of the triggers is that unlike in the past, the future bailouts of such banks by the Government using tax payers' money are less likely. The agency believes that this time things might be different, thanks to the new US banking regulations. The agency expects that if a crisis strikes a bank, instead of public funds, bank holding company creditors will be bailed-in and will share much of the burden to recapitalize the failing bank. As such, next time if a crisis hits, bank's creditors should be bearing the worst consequences.
However, an assumption that new regulations can handle big bank failures seems to be naive. The rot has set in too deep to limit risks at this stage. Banks have been given unrestricted power in the past. There are huge systemic risks associated with the failure of one big bank that can threaten the entire economy. It is not difficult to imagine the disaster after already having witnessed the collapse of Lehman Brothers. Hence, steps should be taken to ensure that banks don't take unwarranted risks and remain less likely to fail in the first place.
Of course it can't be anything else. Anyone who has a good understanding of the crisis knows that most Wall Street firms should have been wiped out by now given the losses they had racked up. What has transpired though is the total opposite. The US Fed opened the floodgates like never before, making the same Wall Street banks that were teetering on the brink of a collapse, one of the most profitable entities in the world. And the sad part is the US Fed seems far from done. It seems hell bent on rolling out one QE after another, ignorant of the pain it would eventually cause.
Once considered too-big-to-fail, the big US banks have been given a dose of reality by the renowned rating agency Moody's. In its latest report, the agency has downgraded the rating four big banks by one notch. So what has prompted the change in the stance? One of the triggers is that unlike in the past, the future bailouts of such banks by the Government using tax payers' money are less likely. The agency believes that this time things might be different, thanks to the new US banking regulations. The agency expects that if a crisis strikes a bank, instead of public funds, bank holding company creditors will be bailed-in and will share much of the burden to recapitalize the failing bank. As such, next time if a crisis hits, bank's creditors should be bearing the worst consequences.
However, an assumption that new regulations can handle big bank failures seems to be naive. The rot has set in too deep to limit risks at this stage. Banks have been given unrestricted power in the past. There are huge systemic risks associated with the failure of one big bank that can threaten the entire economy. It is not difficult to imagine the disaster after already having witnessed the collapse of Lehman Brothers. Hence, steps should be taken to ensure that banks don't take unwarranted risks and remain less likely to fail in the first place.
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