(Phil Foster image)We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.
I can only say: I'm sorry, America. 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.
Five years ago this
month, on Black Friday, the Fed launched an unprecedented shopping
spree. By that point in the financial crisis, Congress had already
passed legislation, the Troubled Asset Relief Program, to halt the U.S.
banking system's free fall. Beyond Wall Street, though, the economic
pain was still soaring. In the last three months of 2008 alone, almost
two million Americans would lose their jobs.
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."
My part of
the story began a few months later. Having been at the Fed for seven
years, until early 2008, I was working on Wall Street in spring 2009
when I got an unexpected phone call. Would I come back to work on the
Fed's trading floor? The job: managing what was at the heart of QE's
bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds
in 12 months. Incredibly, the Fed was calling to ask if I wanted to
quarterback the largest economic stimulus in U.S. history.
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