1) This is the financial equivalent of taking a sledgehammer to squash a bug. Financial markets operate largely on confidence, and especially the rule that the Fed is the lender of last resort at their specified Fed Funds Rate (now 25 basis points lower as of Wednesday).
2) This isn’t $165b. It could be the same $75b used every day.
3) No, this isn’t a sign of a healthy market, but bond prices especially in Europe have gone bananas the past few months and we could be in the biggest bond bubble of our generation. This was evident in negative yields as also a very quick yield curve inversion in the U.S. for 2y10s.
4) I personally believe some banks were over levered as bond prices began to unwind this week and got caught with their pants down.
5) I think the Fed is using this sledgehammer approach to allow some banks to unwind and de-lever their bond positions safely and orderly over the next 2 weeks.
6) I said #5 about 11 years ago, but I believe “this time it’s different.”