America Convulses in Pain, Fed Bails Out the Wealthy

America Convulses in Pain, Fed Bails Out the Wealthy. By Wolf Richter.

The Federal Reserve … printed $2.9 trillion since early March to bail out investors in highly leveraged hedge funds that were imploding, and to bail out investors in highly leveraged mortgage REITs that were imploding, and to bail out asset holders whose stocks were plunging, and speculators in the riskiest concoctions, and investors of all kinds, and to bail out asset holders of any kind — and the wealthier they were, the more they got — to make sure they don’t feel any of the pain. …

The Fed printed $2.9 trillion since early March. That’s about $22,000 per household. For the bottom half of households, $22,000 would have helped a lot to get through the crisis.

But this money wasn’t spread to them. It was helicopter money for Wall Street. And it went on to multiply. And most of it ended up with a relatively small number of households. And their wealth increased by the trillions of dollars.

The Fed’s huge purchases of Treasury securities in March was a hedge-fund bailout. As the Treasury market went haywire with the 10-year yield first plunging then spiking, hedge funds that had huge and highly leveraged bets on Treasuries began to blow up. …

In central-bank lingo, this is called “moral hazard”: Bailing out the wealthy and asset holders, hedge funds, mortgage REITs, private equity firms, and huge risk takers, and it’s called “moral hazard” because it encourages this risky behavior because they know that they’re going to get a bailout when it hits the fan next time, and so they do the same thing again and take even greater risks, and it blows up again with even bigger consequences, and they get bailed out again with even more trillions. …

People took these risks because they wanted the returns. Bailing them out and making them whole destroys the discipline of capitalism — and it destroys capitalism itself.

What you’ve got left is a messed-up situation where asset holders reap all the gains and rewards and returns, and when these bets hit the fan, the Fed shuffles the losses and risks into the other direction, which in the end crushes the fruits of labor of those who have to work for a living as they end up having to pay higher prices for everything, from healthcare to housing.

With these bailouts, the Fed confirms that there is no level playing field. And it purposefully and with premeditation increases a wealth disparity that is just out of this world. …

By means of a slew of programs, the Fed has handed $2.9 trillion so far to Wall Street. .. This is the largest wealth transfer in the history of mankind, and it increased by a huge amount the already huge wealth disparity. Thank you Fed halleluiah.

People who don’t hold assets, the people that depend on their labor to get through life, they got totally screwed.

The money manufacturing system, and the system of public servants who set interest rates, has become corrupt. It now acts against the interests of the vast majority of western citizens.

Get the bureaucrats out of the way, and let the market decide. Having bureaucrats dictate prices didn’t work for the Soviet Union, and it’s gradually created an almighty debt problem and massive wealth disparities here in the West. Time to re-think central banking.