BlackRock Is Bailing Out Its ETFs with Fed Money and Taxpayers Eating Losses

Re:BlackRock Is Bailing Out Its ETFs with Fed Money and Taxp... by tripletao on Friday June 05, 2020 @01:35AM (#23425379)

I think I understand whatok's distinction, and I think it's significant. They're saying the Fed is buying ETFs instead of individual bonds not because they prefer to buy ETFs, but because the certification rules forbid them from buying bonds. That's a consequence of those rules, and not of the market for the individual bonds, except to the extent the different characteristics of the individual bonds vs. ETFs caused those different rules to be written in the first place (which I do believe is the case, per my other comment).

I believe my original comment more or less correctly describes the operation of the program, and the reason for that operation. That operation wasn't actually the intent of the program, though, just the consequence of rules that didn't work like the drafters expected.

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Re:BlackRock Is Bailing Out Its ETFs with Fed Money and Taxp... by arkis22 on Friday June 05, 2020 @02:40AM (#23425706)

Be precise.

It seems like you think the Fed's failure is that they don't buy individual bonds. Why would the Fed prefer to buy individual bonds? The Fed buys individual bonds. It buys government debt and people hate them for it.

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Re:BlackRock Is Bailing Out Its ETFs with Fed Money and Taxp... by tripletao on Friday June 05, 2020 @03:10AM (#23425861)

I'm not sure what you mean? I think the Fed buying ETFs is fine, and that the Fed buying individual corporate bonds on the secondary market would be fine too but more complicated to administer without the appearance of political favoritism.

So it makes sense to me that they're buying ETFs. whatok pointed out that the Fed didn't originally set out to buy mostly (or exclusively) ETFs, but rather to buy mostly individual bonds--it's just that the individual-bonds program turned out to be too complicated to actually use, so they ended up buying all ETFs. I thought that was a good clarification, and an interesting lesson on the complexity of modern finance (that even the creators of the program failed to predict how it would actually work).

I'm not sure what to say to someone who hates the Fed for buying government debt, beyond that they've grossly misunderstood how a central bank works. I'd guess they also hate both the individual corporate bonds and the ETFs, so I'm not sure what your point is there?

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