From Matt Taibbi's report in Rolling Stone:
... What is “QE”? The first round of “quantitative easing” was a program announced by Ben Bernanke last March in response to the financial crisis, ending in March of this year. In what will soon be known as “QE1”(i.e. once QE2 is announced), Bernanke printed over a trillion dollars out of thin air, then used that money to buy, among other things, mortgage-backed securities (MBS) and Treasury Bonds. In other words, the government was printing money to a) lend to itself and b) prop up the housing market, with Wall Street stepping in to take a big cut.
That was QE1. There has long been speculation that another trillion-plus money-printing program called QE2 is coming, but only recently have there been concrete hints from the Fed along those lines. Among other things, New York Fed Vice President Brian Sack just this week squeaked out a comment about how, "In terms of the benefits, balance-sheet expansion appears to push financial conditions in the right direction.” Translating into English, “balance-sheet expansion” means the Fed adding to its balance sheet, i.e. printing money to buy stuff – i.e. QE2.
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But one thing we know for sure is that big banks and Wall Street speculators are real, immediate beneficiaries of the program, as they suddenly have trillions of printed dollars flowing through the financial system, with endless ways to profit on the new chips entering the casino.
And by an amazing coincidence, many of the biggest players in the financial services industry have a habit of buying up MBS or Treasuries just before these magical money-printing programs of the Fed send their respective values soaring. If you own a big fund, for instance, and you know that the Fed is about to buy a trillion dollars of mortgage-backed-securities through a new Quantitative Easing program, buying a buttload of MBS a few weeks early is a pretty easy way to make a risk-free fortune. One of the worst-kept secrets on Wall Street is that the big bankers and fund managers get signals about the Fed's intentions about things like QE well before they are announced to the rest of us losers in the public.
A hilarious example of this cozy insiderism popped up just a few weeks ago, when PIMCO bond fund chief Bill Gross let it slip on a live CNBC interview that he was getting inside info from the Fed. The interview is with former Goldman analyst and (now) CNBC anchor Erin Burnett, as well as my slimeball former colleague from the Moscow Times and (now) CNBC bobblehead Steve Liesman, who slobber typically over the bond king in the segment.
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