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QE Might Be a ‘Toxic Legacy’ Poisoning America – Financial Times

By John Morgan

Uneasiness is mounting about what some analysts view as a “toxic legacy” left behind by the Federal Reserve’s unprecedented quantitative easing (QE) program and the towering debt it is leaving behind.

When the Fed unveiled its ultra-easy monetary policies 2008, the aim was to spawn so much liquidity that investors would be willing to venture out of safe harbors and into riskier assets, The Financial Times reported.

The problem is that the strategy may have worked too well.

“Wall Street’s securitization machine has kicked back into gear to churn out bonds that package together corporate loans, commercial mortgages and, of course, subprime auto loans,” The Times reported.

Dealogic data showed corporate junk bonds sold in 2013 totaled $359 billion — a record. And asset-backed securities (ABS) that bundle together sub-prime auto loans have reached $17.4 billion so far in 2014, the highest level since the 2008 meltdown.

“The question now is whether the rebound in sales of risky assets will prove to be a toxic legacy of QE in a similar way that the popularity of subprime mortgage-backed securities was partly spurred by years of low interest rates before the financial crisis,” said The Times.

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