Fed flirting with moral hazard to keep markets open, Dudley says

Bloomberg/Alister Bull

graphic image of moral hazard spelled out in scrabble letters“We had a number of players in these last few months that have essentially been bailed out by the Fed: Hedge funds that were invested in cash Treasuries, and short Treasury futures,” said Dudley, noting Fed Treasury purchases helped “those entities unwind what turned out to be a bad trade.”

USAGOLD note: Haven’t heard much about moral hazard of late but the Federal Reserve, it can be said without much in the way of push back, is dishing it out in spades. It won’t be long until the old criticism that Wall Street and the Federal Reserve privatize profits and socialize losses is back in vogue. That might seem to be a rather banal comment at this stage of the game, but the socialization of Wall Street’s losses, in the end, amounts to a tax on the citizenry either in the form of direct levies on income or the more insidious process of inflation – and that’s a big deal.


Repost from 6-4-2020

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