wisdom speaker wrote

mock turtle wrote:

"...but the two programs are not the same..."

But they are. Under TARP, Uncle Sam issued a large quantity of Treasuries, and injected the cash thus obtained into the banking sector. Effectively a taxpayer-guaranteed loan to the banking sector, funded by investors' cash. But whence flowed the cash?
Ahh, lookie here! We have the Federal Reserve doubling its "balance sheet" to buy Treasuries and Agencies (which are nearly equivalent to Treasuries, given the nationalization of Fannie and Freddie). Net result is a loan of newly-minted cash from the Federal Reserve to the banks, collateralized by the assets and "earning power" of the banks, with the taxpayers on the hook in case the banks fail to make good.

Now, look at the Fed's other program. Bankers walk up with trash MBS, walk away with Treasuries and sell them for cash. Federal Reserve doubles its balance sheet to "buy more" Treasuries and Agencies. Banks have to back the MBS loaned to the Federal Reserve in the event that they are no longer AAA-rated (or something like that)... Net result is a loan of newly-minted cash from the Federal Reserve to the banks, collateralized by the assets and "earning power" of the banks, with the taxpayers on the hook in case the banks fail to make good.

Read the last sentence of each paragraph and tell me what's different, exactly?

This would be inflationary except that most of the relevant inflation (expansion of money and credit) already occurred. It occurred when the house and stock markets inflated. That was done with shadow bank credit, which the Federal Reserve has now made explicit. They had the choice of ratifying the banks' stealth inflation of "asset values" or allowing the FIRE sector to re-equilibrate with the real economy through asset deflation, and they blinked. (Congress blinked too -- they raised the minimum wage by a large chunk to ratify the inflation as well.) The next problem is that the people's agents in government also failed to rein in the creation of yet more shadow bank credit, so the stage was set for yet another inflationary asset bubble...

Meanwhile, the real economy struggles under tremendous friction from the burden of servicing the huge, and generally non-productive population in the FIRE economy. "Credit intermediation" is "productive friction"...