You don’t really think MBS purchases by the FED are a good idea? I get the velocity issue, but we’d be better off had the bad banks gone under, bad loans been resolved via the marketplace, and both bankers and borrowers borne the cost.
Instead the thrifty and prudent are punished and the guilty rewarded. We need a good and strong and transparent lending regime. We don’t have that and we’re not going to get there via QE. It’s methamphetamines for a lethargic economy made exhausted by the previous doses of speed. Debt has to clear and trust has to be restored. QE isn’t restoring trust and neither is Obama & Co.
Very unpopular opinion here on FR but I absolutely believe TARP (as originally written by Paulson/Bernanke not the bastardized version from Congress) was the right thing to do. The financial system was melting down (it was a very scary time - I work in corporate finance and investor relation and do financial and economic forecasting. It was an incredibly volatile period in late 2008. Our forecasts were literally changing daily). Letting the banks go under would have been a disaster 1000x what we saw. Commerce would have stopped. Thousands of businesses would have gone under and 10’s of millions would have lost jobs. The Fed backstopping the banks restored faith in the credit system which is the lifeblood of economic activity.
Now, should the idiots who levered up with exotic financial products they didn’t understand go to jail? Absolutely. But to let the banks go under would have been economic suicide.
QE isn’t related to TARP. When the market demands liquidity how is it provided? When everyone is hoarding cash (i.e. Collapsing velocity) and the system can’t provide it what are the consequences? DEflation is exponentially worse than inflation.
The purpose of QE isn’t to restore trust. It’s to provide the liquidity demanded by the market.