I saw this described as a preemptive bailout, and it's the best explanation of what's happening I think. Back in 2008 they let the crash happen and then bailed the companies out. This time they're pumping money into them ahead of time, but the net effect is the same.
To the best of my understanding what happened is that the fed bought up overpriced bonds from financial institutions like Goldman Sachs, which wasn’t a significant issue when interest rates were under their control between 2008 and 2022. However, the loss of credibility on inflation led to rate hikes, causing accumulated losses. Fed “losses” are banks “gains” in terms of revenues, that ultimately become net income and turn into capital. Rate hikes and macro-management of money markets are designed to make borrowing expensive, protect big banks, and reduce demand by pushing small and mid-cap stocks into bankruptcy. This approach seems poised to result in further consolidation and monopolization of capital.
This is why, from what I heard, the Fed is currently operating in the red as they effectively are bailing the banks out by writing things off.
I saw this described as a preemptive bailout, and it's the best explanation of what's happening I think. Back in 2008 they let the crash happen and then bailed the companies out. This time they're pumping money into them ahead of time, but the net effect is the same.
Are they pumping in money or are they doing something else? I heard it wasn't a direct money transfer but some other accounting move.
To the best of my understanding what happened is that the fed bought up overpriced bonds from financial institutions like Goldman Sachs, which wasn’t a significant issue when interest rates were under their control between 2008 and 2022. However, the loss of credibility on inflation led to rate hikes, causing accumulated losses. Fed “losses” are banks “gains” in terms of revenues, that ultimately become net income and turn into capital. Rate hikes and macro-management of money markets are designed to make borrowing expensive, protect big banks, and reduce demand by pushing small and mid-cap stocks into bankruptcy. This approach seems poised to result in further consolidation and monopolization of capital.