‘Free Money Machine’ Borrowing Hit $168 Billion Before Fed Slammed Door
A month ago, I called readers' attention to what I dubbed the "free money Fed arb."
The mechanics are (or were) simple enough: Thanks to escalating bets on rate cuts in 2024, the rate banks were charged to access the backstop facility established in the wake of SVB's collapse was considerably lower than the rate banks could earn from the Fed on their reserves.
The spread between the two was free money, and as such, it was no surprise to see borrowing from the Bank Term Funding Program balloon
“accidentally”
Yes, “accidentally” for more than two whole months, with nary an action by the Fed (tho the spread technically loosened financial conditions at cross-purposes with its tempering rhetoric at the time). That is, until the media started reporting on it (after the analysts and blog authors worth paying for had already noted it, of course).
To quote The Economist article “…And because the Fed is owned by taxpayers, the free money the banks are hoovering up comes at the taxpayers’ expense.”
From their actions it seems like the Fed is owned by the banks….. OH wait IT IS!
The Economist need to do their fact checks.
The Economist is just wrong on that, though. No humor necessary. The Fed isn’t loaning out “taxpayers'” money. That’s just factually inaccurate.