No, The Fed Did Not “Give” $1.5-Trillion To Banks

What the Fed did do was promise banks — if they put up their own collateral — it’d help them stop a train wreck

We can’t overemphasize the importance of the Federal Reserve’s action. Even though we keep seeing it written off as failing to inspire the markets. And the way it’s being depicted by many in our Twitter feed — that it could’ve been better used to forgive student loan debt — is simply not accurate.

Here’s how the Fed describes what it’s doing, which it calls “Repo Agreements” (it sounds complicated, by really it isn’t):

“In a repo transaction, the Desk purchases Treasury, agency debt, or agency mortgage-backed securities (MBS) from a counterparty subject to an agreement to resell the securities at a later date. It is economically similar to a loan collateralized by securities having a value higher than the loan to protect the Desk against market and credit risk. Repo transactions temporarily increase the quantity of reserve balances in the banking system.”

In other words, it’s a very short term loan. And banks aren’t getting anything but access to a quick fix of cash to tide them over and help them balance their books at the end of crazy days. Which they don’t get to keep. And in exchange, the Fed is…