In 2009, just after the Great Recession struck, Andrew Huszar got a job at the Fed managing its "Quantitative easing" program— a huge purchase of bonds designed to stabilize the economy and get credit flowing. Now, Huszar says the program is a failure.
Huszar wrote an op-ed in the Wall Street Journal today—the sort of op-ed that will be forwarded around Wall Street and gossiped about endlessly, because (like Greg Smith's op-ed about Goldman Sachs) it is that rare creature, the Insider Speaking Out Against His Fellow Insiders. In it, Huszar calls the Fed's QE programs (now in their third iteration, with $85 billion of bond purchases per month) "the greatest backdoor Wall Street bailout of all time." He says that rather than accomplishing its goal of getting banks lending again, it succeeded only in juicing Wall Street's profits and artificially propping up stock prices. From Huszar:
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...
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?
While it's shocking to hear someone who ran the program say these things, it's worth noting that these points have been made before— for example, by billionaire financier Stan Druckenmiller, who called the QE program "the biggest redistribution of wealth from the middle class and the poor to the rich ever." (Of course, populists on both the left and the right dismissed it when Druckenmiller said it, because he's rich.) It's also worth noting that there is no shortage of pushback from various financial commentators against Huszar's piece. It's also worth noting that Huszar's mea culpa is notably short on proposals for what should have been done instead of QE. Presumably something.
One valuable discussion that could emerge out of all this: The next time the global economy collapses, might it not be more effective to funnel money directly to citizens, rather than to Wall Street, which the government then hopes will lend that money to citizens? Just a thought.