[joe_the_user]

Aside from the other considerations, "it was a good investment" stuff is just ridiculous. The general bank isn't in operations to make money - it's in operation to protect the market, the currency and the economy as a whole so whether it makes money is irrelevant to whether these loans were a good idea.

But even more, if the Fed basically designates a bank "too big to fail" (as the Fed did) and loans the bank the money it currently needs, the markets can this. And this allows the bank to "print money" itself by issuing bonds - since now the market knows those bonds are effective guaranteed by the Fed and so equal to money. Thus the bank can easily issue enough bonds to repay or over-pay the Fed. But that's not a "see, problem solved!" situation.

The theoretical problem of this sort of action is naturally these large entities potentially issue loans and borrow without being disciplined by risk. That might be compensated for by other actions - say preventing them from issuing risky loans. But things still wind-up a bit "distorted". I'd recommend Doug Noland's Credit Bubble Bulletin on the subject.

[arcticbull]

> Aside from the other considerations, "it was a good investment" stuff is just ridiculous. The general bank isn't in operations to make money - it's in operation to protect the market, the currency and the economy as a whole so whether it makes money is irrelevant to whether these loans were a good idea.

The central bank did not make these investments, Congress did, and so the yields did not accrue to the central bank but to the Treasury. If you've ever met the IRS you know that the job of the Treasury is in fact to accrue revenue.

The central bank's charter is to maintain a low, predictable rate of inflation over a medium term and to maintain maximum employment.

> The theoretical problem of this sort of action is naturally these large entities potentially issue loans and borrow without being disciplined by risk.

I agree, which is why Congress needs to better regulate the sector. However that's Congress' job not the Fed's.

[joe_the_user]

I don't think any of your actually change my point that the project making money is irrelevant to and a distraction from the basic impact of the loans.

While one can debate whether just regulation can prevent private investors from engaging in risk, there are other impacts as well. Putting a whole lot of money into bank which invest in "safe assets" like real estate, causes the relative price of those assets to increase. This distorts the economy - that disproportionate rent and real estate price increases over the last ten and twenty years are arguably a product of Fed largess. And these have been a disaster for anyone not being buoyed by the risings - the majority of those in lower income categories.

[arcticbull]

Housing is a very different matter, one primarily defined by zoning. Zoning rules in major metros prevented supply from meeting demand by preventing new construction. Zoning rules outside major metros made the average new home 2X bigger. [1] Combined these make houses dramatically more expensive even though the cost per square foot on average, adjusted for inflation, is exactly the same as it has been since the 1970s.

Japan for instance has seen their M2 money supply 3X from 1990 to 2022, while the affordability of a house there hasn't decreased since 1995. [2]

This is due to their federal zoning rules which permit housing construction practically everywhere. [3]

The increase in price of housing is what's driving inflation, not vv imo.

And for what it's worth, I think Glass-Steagall (brought in as part of the post-Great Depression reforms) did a very good job of preventing retail banks from investing in toxic garbage and its repeal in 1999 was IMO a major contributing factor to the crisis in the first place. [4]

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

[2] https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI

[3] https://marketurbanism.com/2019/03/19/why-is-japanese-zoning...

[4] https://www.federalreservehistory.org/essays/glass-steagall-...

[joe_the_user]

The increase in price of housing is what's driving inflation, not vv imo.

That's like saying "price increases lead to inflation". Which is true but illuminating.

Limitations on housing construction certainly made homes especially valuable as an investment in places like California. But the vast amount of money-created-out-of-thin-air was what sought this reliable investments. The situation you mention is just related to what I describe, it doesn't refute what I describe.

The main thing is that this inflating of money has a number of noxious qualities, the inflation of housing costs just being one of them. Prices are signals for how resources should be allocated and distorted prices result in distorted allocations of resources. For small example, there's a daft and dangerous plane to restart a fricken gold mine in the little tourist next to my town - with all attendant potential for multiple types of pollution and with gold only getting kind of play because it's a fixed asset with a price driven sky-high by the present money creation process.

[NovemberWhiskey]

>Japan for instance has seen their M2 money supply 3X from 1990 to 2022, while the affordability of a house there hasn't decreased since 1995. This is due to their federal zoning rules which permit housing construction practically everywhere.

I mean I've no doubt that's some sort of a factor, but on the other hand the population of Japan is also almost exactly the same as it was in 1995 whereas the US population has increased by 25% in the same period - I'm not sure I'd so easily rule out demographics as a factor!

[arcticbull]

All that means is that supply met or exceeded demand, which is the point that I'm making - we are precluding supply from meeting demand via artificial supply constraints.

In their case it was a combination of a declining population and zoning rules. However, the decline AFAIK was concentrated outside urban areas. Tokyo grew from 32.5M to 37.5M between 1990 and 2022 without any increase whatsoever in the real dollar price of housing.