An insider’s perspective of QE

An insider’s perspective of QE

Andrew Huszar managed the first round of the Federal Reserve’s Quantitative Easing program, purchasing $1.25 trillion of mortgage-backed securities from 2009 to 2010. The former Morgan Stanley managing director has penned an opinion piece in the Wall Street Journal that questions the efficacy of the program. It’s well worth a read (click here).

Here are the implications from the insider’s perspective:

• Trading from the first round of QE provided trivial relief for Main Street, but considerable relief for Wall Street. The banks have enjoyed lower wholesale credit costs, rising values on their security holdings, and large commissions from brokering most of the Fed’s QE transactions.
• The first round of easing wasn’t making credit any more accessible for the average American, as banks were issuing fewer and fewer loans.
• $4 trillion of purchases may have only generated a few percentage points of U.S. GDP growth.
• QE killed the urgency for Washington to confront the structurally unsound U.S. economy.
• It is expected that the program will continue next year, as Ben Bernanke’s likely successor, Fed Vice Chairwoman, Janet Yellen, supports the easing.
• QE has become Wall Street’s “too big to fail” policy.

Andrew Huszar became disillusioned with the independence of the Federal Reserve and returned to the private sector after the first round was completed. The apology for his role in the program serves as a timely warning that the economy is likely to wake up with a chronic headache when the party inevitably ends.