Mercury Rising 鳯女

Politics, life, and other things that matter

Oh yes, that bank bailout

Posted by Charles II on February 19, 2013

Robin Harding and Tom Braithewaite at the FT reports that the Fed is balking at exiting its purchase of assets from the banks to keep them from going under. At the moment, it holds $ 1.6 Trillion and is expected to purchase $1T more. At the moment, it’s paying at 0.25%, or just $4B/year. But the exit plan is to get interest rates back to 2% before regurgitating that much paper. That would be over $50B, which is more than the profits at the biggest banks. Bad optics, you know.

And then there’s the question of losses that the Fed may take. They didn’t get to buy all that paper because the banks thought it was profitable. They got to buy it because the banks thought it was manure. While I doubt they’ll lose all that much (and they can just raise their assessment on the member banks), it will become a matter for public comment.

And justifiable rage.

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