We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.

I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system’s free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.

The Fed said it wanted to help through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed’s central motivation was to “affect credit conditions for households and businesses”: to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative “credit easing.”

My part of the story began a few months later. Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed’s trading floor? The job: managing what was at the heart of QE’s bond-buying spree a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

This was a dream job, but I hesitated. And it wasn’t just nervousness about taking on such responsibility. I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank’s credibility, and I had come to believe that the Fed’s independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp. I could also see that they desperately needed reinforcements. I took a leap of faith.

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.

It wasn’t long before my old doubts resurfaced. Despite the Fed’s rhetoric, my program wasn’t helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn’t getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

From the trenches, several other Fed managers also began voicing the concern that QE wasn’t working as planned. Our warnings fell on deaf ears. In the past, Fed leaders even if they ultimately erred would have worried obsessively about the costs versus the benefits of any major initiative. Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street’s leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They’d also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

You’d think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later after a 14% drop in the U.S. stock market and renewed weakening in the banking sector the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang Sch uble, immediately called the decision “clueless.”

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

And the impact? Even by the Fed’s sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn’t really working.

Unless you’re Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.

As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again “bubble-like.” Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.

Even when acknowledging QE’s shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The implication is that the Fed is dutifully compensating for the rest of Washington’s dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street’s new “too big to fail” policy.

9 Things I’ve Learned from Benjamin Graham about Investing

1.   The last time I made any market predictions was in the year 1914, when my firm judged me qualified to write their daily market letter based on the fact that I had one months experience.  Since then I have given up making predictions. 

You will not outperform the market in making macroeconomic forecasts. Yes, markets will swing up and down. No, you do not need to forecast those swings to be a successful investor.

2.  Abnormally good or abnormally bad conditions do not last forever.  The market will be cyclical even though you can’t beat the market with macro forecasts.  

While it is in those swings that opportunity is created, it is by ignoring the temptation to make macro forecast that these great investors find success.

3.   The disciplined, rational investor searches for stocks selling a price below their intrinsic value and waits for the market to recognize and correct its errors. It invariably does and share price climbs. When the price has risen to the actual value of the company, it is time to take profits, which then are reinvested in a new undervalued security. 

When you focus on intrinsic value you need not time the market.  By focusing on the micro (e.g., the value of individual company or bond), the macro takes care of itself.

4.   The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future. 

Everyone makes errors and mistakes and so having insurance against those mistakes is wise.  With a margin of safety you can be somewhat wrong and still make a profit.  And when you are right you will make even more profit than you thought. Finding a margin of safety is not a common event so you must be patient. The temptation to do something  while you wait is to hard for most people to resist. The best investors are those who have a temperament which is calm and rational.

5.   Market quotations are there for [your] convenience, either to be take advantage of or to be ignored. 

This is consistent with Buffett’s point that one should value the market for its pocketbook not its wisdom.

6.   The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. An investment is based on incisive, quantitative analysis, while speculation depends on whim and guesswork. 

If you are trying to predict the behavior of a crowd you are a speculator.  Great masses of people have a strong tendency to herd which inevitably produces swings in prices. By focusing on value instead of price the intelligent investors can find profits over the long term. In the short run, the market is a voting machine but in the long run it is a weighing machine.

7.   Investment is most intelligent when it is most businesslike. It is amazing to see how many capable businessmen try to operate on Wall Street with complete disregard of all the sound principles through which they have gained success in their own undertakings. 

Ultimately a share of stock is partial ownership of a business. Too many investors abandon all that they have learned in business.

8.   It is bad business to accept and acknowledge possibility of a loss of principal in exchange for a mere 1 or 2% of additional yearly income. If you are willing to assume some risk you should be certain that you can realize a really substantial gain in principal value if things go well. 

 It is only acceptable to undertake a risky investment if you are properly compensated for that risk.

9.   The investors chief problem and even his worst enemy is likely to be himself.  

If you can’t explain the ‘pause’, you can’t explain the cause…

New paper finds another huge error in carbon cycle assumptions equivalent to 30 years of man-made emissions

…another huge error in the global carbon cycle assumptions used by carbon cycle models such as the highly-flawed IPCC Bern model and as the basis for other models including climate and ocean ‘acidification’ models. The authors “provide estimates of the climate benefits due to CO2 fertilization of the terrestrial biosphere,” finding, “enhanced vegetation growth [from CO2 fertilization] over that period reduced atmospheric CO2 concentration by 85 ppm below what it would have been without that effect, thereby avoiding approximately 0.3°C of warming. This represents a dramatic shift of the carbon budget, by more than 250 billion tons of carbon–more than 30 years of emissions at current rates.”

…more HERE

The U.S. Treasury has booked a $9.7 billion loss on its $49.5 billion bailout of General Motors Co. on the sale of nearly all of its shares it received as part of its $49.5 billion bailout.

Given how far GM stock is below breakeven, it seems likely that the loss to taxayers, primarily to insulate labor unions from the impact of their folly in demanding 95% pay for workers who were laid off and lavish fringe benefits, making American cars uncompetitive with German, Japanese, and other foreign makes, will exceed the nice round figure of ten billion bucks.

In a quarterly report to Congress Tuesday, the Special Inspector General overseeing the $700 billion Troubled Asset Relief Program bailout fund disclosed that the Treasury had realized a significant loss on its sale of most of its 60.8 percent stake in GM. Through Sept. 30, Treasury sold 811 million shares of the 912 million shares it received in the automaker as part of its 2009 bankruptcy restructuring.

The taxpayers’ ownership stake in the Detroit-based automaker – swapped for more than $40 billion in loans, was initially 60.8 percent, but is now down to about 7 percent, the Treasury said. “Because the common stock sales have all taken place below Treasury’s break even price, Treasury has so far booked a loss of $9.7 billion on the sales,” the report said.