My Background I was an Economics major a long time ago and I don't work in a related field. I have this question that's been nagging me. I hope somebody can answer the questions at the bottom.
Background Information During Open Market Operations, the Fed buys or sells Treasuries in order to effect certain desired results such as changing the interest rate or changing the money supply.
To pump more money into the economy, the Fed will buy tons of Treasuries. In other words, banks and other entities will give their Treasury papers to the Fed and in return, the Fed gives cash to the banks. Then, this cash eventually finds its way into the local economy, spurring economic activity.
When the Fed sells and buys Treasuries from banks, aren't the banks getting an enormous gift? When I say gift, I mean that it's almost like free money. When the Fed buys Treasuries, it announces what it will do and then buy in massive quantities which will inevitably drive up the value of Treasuries. Banks are now selling their Treasuries for much higher prices than it was just a few days ago. Isn't this a great deal for them? How can they say no?
The second largest beneficiaries of the Fed's purchase of Treasuries aren't the common masses but are the large institutional investors who have a lot of money to begin with. They are suddenly getting loans at extremely attractive rates and terms. Is this preferential treatment (aka gift) very fair? Can't we create a different system of loans so it's not so skewed towards the wealthiest .1%?
I strongly believe that Open Market Operations are absolutely an indispensable tool for the Fed to manage the economy. But, that's not point though. My point is that although it's necessary, doesn't Open Market Operations extremely favor the financially wealthy? Trickle-down economics may work here but history has told us repeatedly that it's not very even-handed. The money that flows to the average American is much less than what the people at the top get.
Is my description of this process correct? Are Open Market Operations a large gift to the banks and the large investors that receive the initial loans?