Taxpayer subsidies for rich bankers

The Pragmatic Capitalist lays out the financial bailout strategy, including the pump and dump operations of the Fed.

Bill Gross has personally elaborated on PIMCO’s interactions with the Fed and their use of the Fed’s handout. In an interview with TIME in January he said:

“Just speaking about Pimco’s general portfolio strategy, we’ve sold our agency mortgage securities, Fannie and Freddie, in the billions to the willing check of the Fed. They’re buying a trillion dollars of them, or have over the past nine to 12 months, and so we sold them a lot of ours. Now, what did we do with the money? We bought Treasuries, we bought corporate bonds, and so the bond markets in general have benefited, as have stocks, because this available money effectively flows through the capital markets.”

It’s that simple. Toxic assets get exchanged for cash and cash gets exchanged for whatever the banks feel like buying on a particular day.

Dean Baker has more here.

My take:

Toxic waste gets turned over to the taxpayer for losses, held by the Fed. Most of this is bag mortgage debt, and Congress has so far covered about $170 billion in losses. The banks, unloading this bad debt, use the money to buy stocks. The result ultimately is a disruption in government operations, because government can only inflate away about 20% of this debt before hyperinflation.