I have a question about this because I genuinely don’t know the answer.
When the Fed buys billions of dollars of junk assets from Vanguard and Blackrock to stabilize the markets, who is who? How do we know what price they paid and what determines the price?
For example, if the Fed gives Vanguard $1B for junk bonds that have a market value of $100K, how would we know? Where does the extra $900K come from?
Is Blackrock Paul?
Is the Federal Reserve Paul?
Who is Peter?
Where did the Fed get the $1B?
The case of the Fed buying distressed assets in 2008.
This was the way that operation was supposed to work and actually worked:
1. The Fed bought mortgages backed securities, the mortgages of which were guaranteed by federal housing authorities, at a bargain price relative to face value.
2. The Fed paid for these assets with brand now money. Ben Bernanke just printed up the money.
3. The Fed paid interest of bank reserves so that much of this brand new money just stayed in banks. In effect, this part of M0 was part of the national debt.
4. At the time, the Fed had a very good reputation for keeping inflation in check, and the private-sector was in shambles. Many people were happy to carry safe securities at a very low interest rate. If everything worked out well, at a later time, the Fed would re-sell the mortgages-backed securities at a profit and soak up the brand new money it had issued during the panic.
5. There was a risk of inflation. At least some people I know within the Fed were aware of the risk. If the brand new money started getting into the economy (M0 getting multiplied into M1 by the banks), an inflationary spiral would get under way.
6. But the inflationary spiral never got underway and, by the late 2010’s, the Fed was liquidating its portfolio of mortgage-backed securities and disappearing the money it had created during the panic.
7. Then came COVID and the Trump administration thought they could do it again. And, maybe they could have. But, the Trump administration spent so much money it was like the Yellowstone caldera exploded.
8. Then cam Biden and he continued the policy of massive deficit-spending.
9. Here’s the lesson, boys and girls, just because you can make a turn on the instate at 80 mph doesn’t mean you can drive an Indy car at 200 mph in a residential neighborhood.
10. Or, to quote Clint Eastwood, A man’s got to know his limitations.
The actual prices paid are probably on the FED website somewhere. Don’t know if that is public info.
The FED was an uber deep pocketed investor (The FED) who could buy distressed assets and hold them until the economy (real estate market) turned around, and prevent the weak hands from going under, which have been enormously destructive. Bernanke’s QE actually made a nice profit for the US Treasury.
Read this:
“In the meantime, however, quantitative easing has been enormously profitable for the Fed — and for Uncle Sam, which garners all profits from the central bank. The Federal Reserve earned nearly $90 billion in 2012, after accounting for all its expenses. “
https://finance.yahoo.com/blogs/the-exchange/ben-bernanke-huge-gift-taxpayers-150419151.html