Yves here. Sadly, your humble blogger had a sense of the Fed’s priorities when it engaged in a stealthy bailout of nearly all uninsured deposits: that the Fed had decided it was going to make damned well sure to protect the banks so it could continue with its program of hurting workers via increasing unemployment. And remember, as we’ve stressed, this inflation is not the result of too much demand but supply issues plus corporate price gouging, so the Fed is also engaged in economic malpractice in remaining determined to keep tightening the interest rate choke chain.
These bailouts are disastrously bad. They greatly increase overall support for financiers, allowing them to behave even more recklessly on the public dime. And note the central bank has breathed nary a word at to what if any constraints will be imposed, meaning they won’t bother until Congresscritters make enough of a stink.
In addition, the subsidies are biggest at the banks that demonstrated they were lousy at risk management, so the scheme is rewarding failure. The discount window changes allow banks to pledge Treasury and agency securities at the face amount. It’s called a discount window because normally the securities the bank pledge are discounted. Any bonds bought when interest rates were lower are sure to have a current value of less than 100%. And the banks that screwed up the worst will get the biggest upticks versus market value when they go to the (un)discount window.
This was a very aggressive response, when another aggressive response, that of announcing a pause on rate hikes and modes cut until banks had reoriented their affairs to handle them better, would have been a far more direct response to the problem, that the central bank had rais
