Partial Credit for Traders

In the November 11, 2013 Wall Street JournalAndrew Huszar, a senior fellow at Rutgers Business School and a former Morgan Stanley managing director, who managed the Federal Reserve’s $1.25 trillion agency mortgage-backed security purchase program from 2009-2010, penned the following “confession”:

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.

Despite the extremes of narcissism-qua-social philosophy conjured in their papers and conversations, I have never met or read a trader who approves of QE. Every single one believes it a giant joke. However, though they know it benefits Wall Street and its morbid institutions primarily, they would rather not criticize the banks. Instead, their ire focuses on the inflationary intent of the program. They make the mistake of want-to-be’s the world over: they imagine themselves to have the same problem as the billionaires and corporations who shelter trillions from re-circulation in the US economy in off-shore accounts.  While QE is a giant joke, it has nonetheless accomplished its inflationary task. It did so only by creating a new generation of wildly rich who will, in their turn, shelter their dollars offshore.

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