From the Friday, August 21, 2026 print edition:
The Fed and the others became not market makers of last resort, but leveraged buy-and-hold investors of last resort, a completely different thing. A market maker is constantly buying and selling. The Fed was only buying, not selling, in order to push up the price of the securities and to drive down their yields. A market maker is in it to make money on the bid-asked spread; the Fed created giant leveraged naked long positions that might, and then did, lose vast amounts of money.
Notably, the Journal cut the crucial final two sentences. The original letter, as submitted was this:
James Mackintosh suggests that central banks, including the Federal Reserve, made the switch in financial crises from being “the lender of last resort” to “also being market makers of last resort” (Central Banks Are Stuck in a Cycle of Crises,” August 17). It is true that they made a momentous switch, but that was not it. The Fed and the others became not market makers, but leveraged buy and hold investors of last resort, a completely different thing. A market maker is constantly buying and selling. The Fed was only buying, not selling, in order to push up the price of the securities and to drive down their yields. A market maker is in it to make money on the bid-asked spread; the Fed created giant leveraged naked long positions that might, and then did, lose vast amounts of money. The Fed generated operating losses of more than $200 billion and in addition mark-to-market losses of more than $800 billion, for an economic loss of more than $1 trillion. Being a leveraged buy and hold investor of last resort can be an expensive proposition.
Alex J. Pollock
Senior Fellow
Mises Institute
Auburn, Alabama
