[analyst74]

I used to think this way, you see, the fed actually made money in the process, how is this a bad thing?

What actually happened was that major banks were facing a mix of liquidity and solvency crisis, meaning that they were going to go under, but not only they got a cash bailout to deal with liquidity crisis. They also got a QE policy that prop up asset prices they hold, which is equivalent of giving them money and not getting it back.

It's financial wizardry that both the banks and fed made money, where does their profit come from? There are 2 possible scenarios:

1, as fed unwind its balance sheet, the market is going to correct and eventually the fed ends up losing money (to the banks who cashed out first)

2, fed successfully controls the pace of unwinding, so instead of crashing the market it keeps market at a subdued level, absorbing economic growth in the next few years. In this scenario, the profit fed and the banks made are coming from today's and future investors.

[pzone]

> It's financial wizardry that both the banks and fed made money, where does their profit come from?

From an accounting standpoint it's very simple. Asset prices collapsed during the crisis. The Fed held onto them. Asset prices return to normal levels, and everyone profits overall.

[candiodari]

Except a massive amount of money was printed in order to make this happen. That money went into the pockets of the 1%, but the money coming back to the FED comes from the taxpayer (which is mostly income tax) and small-time customers of the banks.

This is the sort of reasoning like the one defended in the article. Of course it's hard to pin blame ... as many individuals worked together to commit the fraud. To me, that seems trivially easy, that means the institution itself, and it's officers (directors and up) are responsible. Because it's fraud, which is criminal, it's not the institution, but the officers directly. Criminal law also has the provision that if you didn't know it was a crime, that doesn't matter : you should have known.

Furthermore this does not mesh with the fact that none of the banks have been forced to make the victims of their fraud whole. None of the CDS investors have received the theoretical value of their investment from the courts, and only very few have even received the amount they paid back. Most got pennies on the dollar. None of the people who lost their house due to foreclosure got it back, BUT when the banks started getting losses because the market dropped when they foreclosed too much, THEN the government stepped in. Then Obama took radical action. Trillions of dollars. Trillions. I don't even know how many zeroes that number has.

Nope, sorry. The Obama government directly, and knowingly decided to legally protect the banks, and even to protect the banks from the consequences of their own fraud (because this fraud they committed resulted in loans not getting paid off ... no worries ! Obama stepped in. Not to protect homeowners, of course, but to protect the banks, make them whole [1]).

And yet ...

When 5 youths rob a store (only one of them, of course, actually stealing anything) ... there doesn't seem to be any problem convicting all 5 of them. There was no proof whatsoever that more than one did anything wrong at all (I'm still thinking the odds of some of them just happening to be in that store not actually in on the crime are pretty good). Happened just this week. Somehow the same reasoning does not apply to banks.

When a 20000 person protest is going on, and 2 of them throw rocks at stores, there is no problem with the police using serious violence against everyone, with them knowing full well that the vast majority have done nothing wrong. Needless to say, broken bones caused by the police are not in fact paid for by the government, not even when there isn't even the slightest claim that the owner of the leg did anything wrong. Not the slightest thing. And of course, prosecutors and courts side with the police.

And let's just not mention what I found when looking into wiretapping. The police has THOUSANDS of internal complaints about abuse of wiretapping. ZERO cases were prosecuted. Zero. Worse: the police actually defended 2 stalkers where the fact that they were being stalked by police officers who got wiretaps on them became obvious to the victims. Bush/Obama/Trump: all the same. They weren't just fraudster-in-chief, but also sexual-abuser-in-chief.

When I get victimized by a fraudulent transaction, the bank is quick to pin it on me. And yet I keep hearing no end of stories that the reverse is also true: when there are fraudulent transactions it is ALSO pinned on the merchant (and I've since come to know how this system works, this is actually true: it results in punishment (financial loss) both for the customer and the merchant. Not, of course, for the bank). Needless to say, courts nearly always side with the bank.

You see, pinning blame is not hard. Even when "it is hard to pin fault on any individual" somehow the justice system seems to find the small guys, and have unreasonable demands on them (see the fraud example above, for some reason both the customer and the merchant get forced to make a big effort to prove they're not at fault. If they don't make this effort, they get screwed, hard. If they do, nobody cares).

[1] http://peoplespolicyproject.org/wp-content/uploads/2017/12/F... (and many other papers)

[wbl]

You're assuming the CDS buyers were victims of fraud. A lot of the time they weren't.

[ChuckMcM]

As I see it the Fed put assets into a weird sort of freezer to maintain liquidity and asset prices and they have been unfreezing them at about the same rate as the GDP has been growing such the net impact on asset prices is unchanged.

[analyst74]

That's an interesting and much more optimistic angle to describe the same thing.

It would be the case if fed has been accurate at setting prices.

[MaxfordAndSons]

> In this scenario, the profit fed and the banks made are coming from today's and future investors.

I think you mean today's and future taxpaying workers, which, sure, some of whom are/will be retail investors. But retail investors are the subset of victims with the best relative outcome, because at least they have something invested.

[analyst74]

The impact on labour is difficult to predict, but most people will have invested in something, either a house, 401k, pensions, etc. Returns on those assets will be lower in the next cycle (I'm not predicting when it'll start), and that would impact people's ability to accumulate a nest egg for retirement.

[cm2187]

On the impact of QE, that's not entirely correct. Banks found themselves flush with deposits (that's good) but low interest rates also killed their profitability (banks are structurally net receivers of interest rates). And negative rates cause further problems as you can't always pay negative interest rates on deposits, but that's what the bank will receive.