Bernanke's QE3 Creating Yet Another Criminal Bubble
October 3, 2012 • 9:21AM

Federal Reserve Chairman Ben Bernanke delivered an all-out defense of his hyperinflationary QE3 policy, at an Oct. 1 speech at the Economic Club of Indiana in Indianapolis, bragging that the late Nobel Prize-winning Nazi economist Milton Friedman "would have supported what we are doing" — which is no doubt true. "We are aggressive, as you know, in trying to prevent the collapse of the banking system. Those are all things that Friedman would have supported."

Tuesday's Financial Times of London matter-of-factly reported that Bernanke's QE3 policy is already creating yet another speculative bubble in the mortgage market. The article says that "the interest banks pay on mortage bonds has dropped from 2.36% on Sept. 12, the day before the Fed announced its [QE3] program, to as low as 1.65% last week... That means the profit, or spread, banks earn from creating new mortgages for homeowners paying around 3.4% and selling the loans into the secondary market has risen to around 1.6%." This is all helped by the fact that the Fed is also buying $40 billion per month in MBS, "that has sent prices for the bundled mortgage loans soaring in the secondary market."

Just how stupid is that? Very.

The FT article quotes Bill O'Donnell, an RBS Securities strategist: "Investors are parking their brains and joining the party, buying up MBS knowing that there will be a willing buyer to take them out at uneconomic levels."

And how criminal is it?

Well, consider the fact that New York State Attorney General Eric Schneiderman just filed civil charges against JP Morgan, because Bear Stearns, which JP Morgan took over during the 2008 crisis, was involved in pretty much the same thing: "material misrepresentation about the quality of the loans in the securities" and "ignoring evidence of broad defects among the loans that they pooled and sold to investors," according to an Oct. 2 NY Times article by Gretchen Morgenson.