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Well yes and no. If it had no effect than stopping it may have no effect as well.
On the other hand if it was keeping the banking system alive then stopping it may have us slowing down again.
We really can't answer that question except down the road in hindsite.
The bigger question is how do you align things so you are somewhat protected in either case. After all we can't predict what will be we can only plan for uncertainty.
On the other hand if it was keeping the banking system alive then stopping it may have us slowing down again.
We really can't answer that question except down the road in hindsite.
........quote]
Huh? QE had no part in helping out the banking industry. QE helped to keep interest rates low. If anything QE was detrimental to banking. Banking does better with higher rates.
In terms of the rest of the economy, QE probably did not do much. Many companies are flush with cash and extremely low interest rates mean little. Banks have plenty of money to lend but are in no rush to lend at extremely low rates. Ending QE is not having and will not have any effect on the economy except perhaps a small positive influence when it ends and if rates creep upwards.
Sure this was a one time experiment without controls, but we can still assess the situation and plan our investments accordingly. And yes I would think a good plan would have some flexibility.
huh?????????????????? it sure did have everything to do with the banking system. , it was supposed to work by re-inflating the banking system .lower rates were a by product of it.
"Quantitative easing (QE) means large-scale purchases of securities by the Federal Reserve in an attempt to stimulate the economy. To carrying it out, the Fed buys government securities from private dealers and pays for them by transferring funds to the dealers’ bank accounts. When the payment is completed, both the total deposits and the total reserves of the banking system increase. If the process works as intended, the banks put the new reserves to work by increasing their lending to businesses and consumers. The whole process increases the quantity of money in circulation and stimulates the economy."
as to why the banks needed that inflating- it has to do with how banks create money to loan out of the air by juggling credits, reserve requirements and liabilities to create virtual money that can be loaned against out of thin air and is more than the money they have on hand to loan against.. . it is easier explained in a link than me typing it .
when the credit markets froze and loans slowed to a trickle the money created out the of air came to a halt and started imploding . the qe's were supposed to replace this vanishing money from the banking system as it started to implode under its own weight..
your welcome , that is why we are all here ,to inform each other.
most do not really understand what the downturn was about , what caused it and how it was dealt with. what folks think caused it was not the housing market crumbling ,that was the result not the cause.
they think it was about low rates being held but no that isn't anything out of the ordinary. the fed open market committee has been raising and lowering rates forever.
qe's were different ,they needed to unfreeze the banking system which from the lack of loans and money to be loaned was just imploding.
Last edited by mathjak107; 10-04-2014 at 11:14 AM..
the theories out there are still debating the main cause but the catalyst was the publics thirst for yield and the feds easy money stance coupled with the banks fudging lendng standards.
with the stock market flat and rates falling from their norm it was the out cry for more yield from grandma and grandpa,the pension funds , the public,etc that led wall street to find ways of supplying that higher yield.
but with little to do it with new products that used old conventional products were invented.
the most popular were cdo's . these were the same plain old packages of mortgages that banks sold forever.
banks would sell these old packages to investors , get the money and make more loans.
well what if they offered one group 5% on these packages , and another group 6% if they waited to get paid after the 5% group, and what if we took these same mortgage packages and offered them to a 3rd group at 7% only they do not get paid until the 5 and 6% groups do.
well that is what wall street did. they took the same old mortgage packages they always sold and threw a new spin on them.
well there was talk of a few banks who were anticipating some unpaid loans and the 7% level panicked and wanted out of their deal. they panicked the 6% group and now everyone wanted out . only no one was buying.
the banks couldn't sell off new loans and without the money they couldn't make anymore new loans. so the credit market ended up freezing.
companies lost credit lines , started to cut expenses laying off people , they had trouble paying their mortgages because they really couldn't afford the homes the banks let them buy since the banks were selling the mortgages any way.
the home market crumbled away. there was no money available to buy a hiome and sellers couldn't sell a home.
now ,while all this was going on a 2nd set of events was happening setting the stage for massive failures.
picture a las vegas betting casino where you can bet on a bank getting payed back or not.
say i loaned a million bucks to jrkliny.. i hear from jrkliny's employer that there might be lay offs.
i get scared and i tell lowexpectaions . he says you know what? i think jrkliny will pay you anyway i heard he has quite a big savings account.
in fact lowexpectations says i will bet you 1k that he pays you. i say great at least if he does i get my million and lose only 1k.
well other cd posters hear of this deal and they want in too. now we have 5 million in bets riding on this 1 million dollar loan.
so now if i get payed the million i have to fork over 5 million.
well that is how the credit default swap market works. you had giant financial institutions betting more money on whether loans would be repayed then the loans were.
many like lehman and bear sterns lost the bet and had no where near the amounts they lost to pay up with.
goldman was even selling those cdo's to clients and then betting through credit default swaps that those investors would get burned. they got caught doing this.
as you see the part the public saw was the after effects , there was so much that caused it that few understand ,but yet they argue about the symptoms not the causes.
Last edited by mathjak107; 10-04-2014 at 12:44 PM..
the theories out there are still debating the main cause but the catalyst was the publics thirst for yield and the feds easy money stance coupled with the banks fudging lendng standards.
with the stock market flat and rates falling from their norm it was the out cry for more yield from grandma and grandpa,the pension funds , the public,etc that led wall street to find ways of supplying that higher yield.
but with little to do it with new products that used old conventional products were invented.
the most popular were cdo's . these were the same plain old packages of mortgages that banks sold forever.
banks would sell these old packages to investors , get the money and make more loans.
well what if they offered one group 5% on these packages , and another group 6% if they waited to get paid after the 5% group, and what if we took these same mortgage packages and offered them to a 3rd group at 7% only they do not get paid until the 5 and 6% groups do.
well that is what wall street did. they took the same old mortgage packages they always sold and threw a new spin on them.
well there was talk of a few banks who were anticipating some unpaid loans and the 7% level panicked and wanted out of their deal. they panicked the 6% group and now everyone wanted out . only no one was buying.
the banks couldn't sell off new loans and without the money they couldn't make anymore new loans. so the credit market ended up freezing.
companies lost credit lines , started to cut expenses laying off people , they had trouble paying their mortgages because they really couldn't afford the homes the banks let them buy since the banks were selling the mortgages any way.
the home market crumbled away. there was no money available to buy a hiome and sellers couldn't sell a home.
now ,while all this was going on a 2nd set of events was happening setting the stage for massive failures.
picture a las vegas betting casino where you can bet on a bank getting payed back or not.
say i loaned a million bucks to jrkliny.. i hear from jrkliny's employer that there might be lay offs.
i get scared and i tell lowexpectaions . he says you know what? i think jrkliny will pay you anyway i heard he has quite a big savings account.
in fact lowexpectations says i will bet you 1k that he pays you. i say great at least if he does i get my million and lose only 1k.
well other cd posters hear of this deal and they want in too. now we have 5 million in bets riding on this 1 million dollar loan.
so now if i get payed the million i have to fork over 5 million.
well that is how the credit default swap market works. you had giant financial institutions betting more money on whether loans would be repayed then the loans were.
many like lehman and bear sterns lost the bet and had no where near the amounts they lost to pay up with.
goldman was even selling those cdo's to clients and then betting through credit default swaps that those investors would get burned. they got caught doing this.
as you see the part the public saw was the after effects , there was so much that caused it that few understand ,but yet they argue about the symptoms not the causes.
now you see why the credit grading of these packages was not the issue. they were the same old mix of good and potentially bad mortgages that was sold forever. nothing changed in that respect. what changed was an untested means of bringing them to market.
fund families like fidelity even maintained a central core fund as they called it. fund managers of conservative funds could buy some of these higer yielding cdo's from the fund for funds fidelity maintained..
little did they know the freeze up would make this stuff toxic.
well when the crap hit the fan even money markets got caught holding this stuff. funds like fidelity's ultra short bond fund got creamed.
in fact the money market i held with david lerner actually failed and broke the buck. i think we got our money out at .98 cents on the dollar or so.
how many people get to say they lost money in a money market.
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