QE as subsidy to Wall Street?

[RewriteQuran]

Bernanke has no other option.
Wall Street is the highest tax payer/job creator.

 

[nutmeg]

Question.

Is quantitative easing a substitute for leverage?

If banks et al no longer can margin 30-1 etc, and need "real" money/collateral that will provide lower margin ratios, how else can this be accomplished and maintain the same playbook.

What has changed in the big picture since Bear Sterns, Lehman, etc. everyone still needs lots of money. If they haven't access to "credit", which ultimately ends up as an asset bubble, they need cash entry on the books.

Thoughts.

 

[Martinghoul]

Quote from nutmeg:

Question.

Is quantitative easing a substitute for leverage?

Yes, of course...

The fundamental fact of the matter is that the system and all of Western society is addicted to leverage. What often happens to an addict that is forced to go "cold turkey"? In order to avoid a possibly calamitous outcome, the govt has to expand its balance sheet to, in some way, offset the precipitous shrinking of the private sector balance sheet. That's QE. The theory goes that, once the patient is stabilized, you can take them off of the "leverage life support machine". Whether things go according to plan remains to be seen.

 

[Martinghoul]

Quote from denner:

o.k., I'll play along with the idea that the banks should have been bailed out. I'm actually not so unreasonable to assume that liquidity measures were necessary at the time as trading between counter-parties completely dried up 2 years ago.

The failure of the intervention was the simple fact that there were not enough restrictions attached to the rescue and/or the institutions themselves should have been divested, split apart, broken up as a means of de-centralizing all of these separate financial centers collectively leveraged under one roof.

In essence, at that time, and as a condition of the rescue packages, we should have turned back the clock to the mid-1990's and returned to a hard line between commercial banking and retail banking commingled with investment banking. i.e. repeal the repeal of Glass-Steagall.

Then again, I realize that it would be near impossible to actually divest entities that were sitting on billions in fraudulent loans that would have to be accounted for. Instead, the decision was made to paper over all of the bad "paper" and try to re-capitalize extremely leveraged banking entities that were for all practical purposes finished.

Yep, I am completely with you on this, denner...

Personally I believe that entities like Citi and BoA should not have been allowed to exist in the first place. When the crisis hits, as demonstrated by history time and time again, the govt and the public are powerless. Therefore, even though it might feel like a waste and a loss of opportunity during the good/normal times, you have to make sure that banks never get too big.

 

[LeeD]

Quote from Martinghoul:

Personally I believe that entities like Citi and BoA should not have been allowed to exist in the first place. When the crisis hits, as demonstrated by history time and time again, the govt and the public are powerless. Therefore, even though it might feel like a waste and a loss of opportunity during the good/normal times, you have to make sure that banks never get too big.

The sad realisation is, if anything, the crisis only made the largest banks bigger.

 

[Martinghoul]

Yep, so a crisis becomes not only a wasted opportunity to improve matters, but actually makes things worse. Given that it happens every time and we're still incapable of learning the lesson, what does that make us Westerners?

 

[nutmeg]

The failure of the intervention was the simple fact that there were not enough restrictions attached to the rescue and/or the institutions themselves should have been divested, split apart, broken up as a means of de-centralizing all of these separate financial centers collectively leveraged under one roof.

-------------------------

My thoughts: If you tell us the truth nothing will happen. Imo, at the time the depth of the problem put on the table was most important.

ps. Martinghoul thanks for the reply.

 

[Scataphagos]

Quote from morganist:

It has got to the point where I don't think Bernanke knows what he is doing any more. I think he is just throwing money at the problem and hoping it will go away.

The Bernank is just a bald, wee man with a tiny penis.

He campaigned for the job, saying "I can handle anything with my money-printing machine". Now, he's trying to prove that he actually is "The BSD" in the financial world.

Too bad he can't just go buy a Corvette like other bald/middle-aged men with a low phallic esteem...