Wall Street profits from trades with Fed – Front page of the FT
Front Page of the Financial Times today
Situation: The Federal Reserve is one of Wall Street’s biggest customers. There are many markets but for the mortgage-backed securities (MBS) market, the Fed purchases more bonds in this market than any other party. In fact, as of last Thursday, the Fed claimed to hold $542 billion on its balance sheet in MBS.
Regarding the Federal Reserve’s role as a player in the markets, from the FT article, “A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them (the Fed). Their transparency hurts them. Everyone picks their pocket.”
Now in response to this, from the FT article, Senator ”Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system. “You can’t rescue the credit system without benefiting some of the people in it.”
Now to help clarify the justification Barney Frank provides, from the FT article, “…another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”
At the very least, we are told, policy goals override any other considerations implying we shouldn’t be concerned if one group of people benefit at the expense of another. We are told, one group of people may benefit (profiteering) from the federal government’s intervention, but it is justified because the end goal is to stabalize the financial system.
Can the financial system be stabalizied without profiteering?
Financial Times Article: http://joeyconway.com/s5nd6c
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