Sure banks will take advantage of the TAF auction… who wouldn’t borrow money at negative real interest rates? And therein lies the problem. It’s not sinister in the sense that something is unethical or unlawful, but given there is no historical analogue for it in our history (not on this scale going back to the 60’s) it should be unnerving.
I guess it is “expedient” if by that, you mean it is the best (only?) tool the Fed has to ensure that banks can continue lend in amounts which will avert a massive credit contraction.
Maybe I am making too big of a deal of the TAF auctions/massive, negative non-borrowed reserves, but perhaps you’re not enough of it.
It’s like WaMu advertising for 6.5% savings accounts and 4.5% free checking. Reminds me of hot-money thrifts in the run-up to the S&L debacle. Banks that engage in huge negative interest margins are desperate and dangerous. I get the same feeling with TAF auctions. It’s a big deal.
