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Alex J. Pollock, Paul H. Kupiec



Articles by Alex J. Pollock, Paul H. Kupiec

The Fed’s “Temporary” Mortgage-Backed Security Experiment Will Last Decades

7 days ago

It has been nearly 14 years since Federal Reserve Chairman Ben Bernanke told Congress that the Fed’s emergency quantitative-easing policy, of which the most radical part was buying mortgage-backed securities, was “temporary” and would be “reversed.”  The Fed made huge mortgage-backed securities purchases. The purchases pushed mortgage interest rates to artificially low levels, stoked the second great house price bubble of the 21st century and made houses unaffordable for many. In addition, these mortgage-backed securities investments unintentionally caused massive Fed losses. They are costing the Fed and taxpayers billions of dollars a month and will for years to come, as there is no practical way for the Fed to reverse its very large, deeply underwater

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Can the Fed Fund the CFPB?

June 7, 2024

Originally published by Law&Liberty. The Consumer Financial Protection Bureau (CFPB) has been a source of controversy since its creation. Critics of the agency have long argued that its independent status is unconstitutional. In a recent decision, however, the Supreme Court affirmed the constitutionality of the CFPB’s funding scheme, even though it circumvents the normal Congressional appropriation process by “allowing the Bureau to draw money from the earnings of the Federal Reserve System.”This decision belies the Fed’s current financial condition and conflicts with provisions in the Federal Reserve Act. The fact of the matter is that the Fed no longer has any earnings. It currently has huge cash operating losses and must borrow to fund both the Fed’s and the

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How the Fed’s 2008 Mortgage Experiment Fueled Today’s Housing Crisis

March 18, 2023

How should Congress assess the Federal Reserve’s track record as an investor in residential mortgage-backed securities (MBS)? Regardless of Fed spin, it merits a failing grade.
The Fed’s COVID-era intervention in the mortgage markets fueled the second real estate bubble of the 21st century. The bubble ended when the Fed stopped purchasing MBS and raised rates to fight inflation. While time will tell whether recent increases in home prices are reversed, the end of the bubble has already cost the Fed over $400 billion in losses on its MBS investments.
From 1913 until 2008, the Fed owned precisely zero mortgage-backed securities. While the Fed’s monetary policy decisions still impacted conditions in the housing and mortgage markets, they did so indirectly through the

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The Fed’s Quantitative Easing Gamble Costs Taxpayers Billions

January 23, 2023

[Reprinted with permission of the authors.]
The year 2023 is shaping up to be a challenging one for the Federal Reserve System.
The Fed is on track to post its first annual operating loss since 1915. Per our estimates, the loss will be large, perhaps $100 billion or more, and this cash loss does not count the unrealized mark-to-market losses on the Fed’s massive securities portfolio. An operating loss of $100 billion would, if properly accounted for, leave the Fed with negative capital of $58 billion at year-end 2023.
At current interest rates, the Fed’s operating losses will impact the federal budget for years, requiring new tax revenues to offset the continuing loss of billions of dollars in the Fed’s former remittances to the U.S. Treasury.
The Federal Reserve

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