"the member banks themselves are on the hook"
how does that work? They only hold stock, which isn't traded, so -- they take some sort of phantom contingency writedown?
And insured is probably the wrong word... I meant more like whatever "full faith and credit" is supposed to mean. I thought you can't really conduct QE if you don't have notes backed by that clause and a whopper of an economy, right?
On 2/29/12, Jordan Hayes <jmhayes at j-o-r-d-a-n.com> wrote:
>> My understanding of all this is fuzzy.
>
> I suggest a quick read of this:
>
> http://en.wikipedia.org/wiki/Federal_Reserve_Bank
>
>> I have a notion that mechanisms like the LTRO, QE etc... are
>> basically publicly insured loans (insured through power of
>> taxation) to banks to shore up their balance sheets via
>> "old fashioned" banking (borrowing short, lending long).
>
> ... and do it quickly, before your notion spreads any further.
>
> The Treasury and the Federal reserve bank are two completely different
> organizations with complimentary goals and charters. QE is in no way or
> theory a publically insured loan. The purchase of assets by the FRB
> does not in any way put the public on the hook: the member banks
> themselves are on the hook. There's more to it -- member banks are
> expected to eat any losses generated by the actions of the FRB, but
> profits must be sent to the Treasury, for instance -- but you've got a
> way to go before you're back to the line of scrimmage on this one. Try
> this one next:
>
> http://en.wikipedia.org/wiki/Quantitative_easing
>
> /jordan
>
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