a time when moretraditional policy tools had been exhausted. the fomc majority pushed aside concerns that providing targeted support to housing is more properly the province of fiscal policy, and voted to proceed. from the start of qe3 to its conclusion, the fed ’ s portfolio of agency securities and mbs expanded by about $ 850 billion. in the latest version of its normalization principles, released this september, the fomc indicated that it expects to reduce its holdings in future years primarily through attrition. what of the expansion of the federal reserve ’ s holdings of longer - term treasury securities under qe3? fed purchases of longer - term treasuries amount to nothing more than the transformation of long - term treasury obligations into short - term obligations of the federal reserve. essentially, long - term government obligations are transformed into short - term government obligations. the government benefits from lower interest costs in the near term, but its future net revenues become more sensitive to future interest - rate increases. government finance problems are reduced today, at a cost of potential future problems. the larger bank reserves become, the greater is the government ’ s future interest - rate exposure. chairman ben bernanke famously said that “ the problem with qe is that it works in practice, but it doesn ’ t work in theory ” – qe3 seemed to succeed in pushing interest rates lower out bis central bankers ’ speeches along the yield curve, energizing the bond market and lowering the hurdle rate for discounting cash flows and earnings of companies whose shares traded in stock markets. 1 this came, of course, at the expense of savers who kept their money in the most basic of short - term investments. but this was a cost that the committee felt was exceeded by the expected wealth effect. well before last week ’ s fomc meeting, it seemed to me that qe3 ’ s effectiveness had waned while its current and potential future costs were mounting. i was thus an enthusiastic supporter of killing the program. indeed, i would rather we had never had qe3 in the first place. to this day, i feel that the costs of accumulating another $ 1. 7 trillion of treasuries and mbs will be shown to exceed the benefits. and yet, as i have said on countless occasions, drawing on former dallas fed board chairman herb kelleher ’ s love for bourbon, once we had qe3 in place, i considered it unwise

protection product is the reverse mortgage programme, which enables homeowners to convert or monetize the equity in their self - occupied homes into guaranteed monthly payouts over 10, 15, 20 years or for life, while still enjoying the use of the properties. for example, a married couple at the age of 65 with a property value of $ 5 million would get a guaranteed payment of $ 11, 000 per month for life and be able to live in the property for life. there is no need for them to worry about repayment at all. their monthly payouts are guaranteed for life even if the value of the property falls in subsequent years, or the interest rates rise significantly, or the couple enjoys very long life. when the couple passes away, and if their children choose not to redeem the property, the bank will recover the outstanding loan with accrued interests by selling the property in the open market. any surplus will be returned to the children of the borrowers or their designated estate. if there is any shortfall, the hkmc will take care of the difference because the borrowers, when taking out the reverse mortgage, have already bought insurance from the hkmc to cover the shortfall risk. this scheme would not have been commercially viable for the banks without the insurance provided by the hkmc to cover the potential shortfall risk due to either falling property prices, rising interest rates or increasing longevity of the borrowers. so far, over 2, 500 households have joined the reverse mortgage programme. the initial take - up rate was not fast but is picking up steadily. it has taken some time for hong kong people to get to understand and appreciate this new product. also, it is quite common amongst chinese parents wishing to pass their properties to their children without encumbrances, which will not be the case if they have joined the reverse mortgage programme. however, there is increasing awareness amongst retirees that they do need to take care of themselves rather than suffering from a steady drop in living standards due to insufficient recurrent cash flows. life annuity scheme 2 / 4 bis central bankers'speeches 6. the second retirement protection product, which has just been launched by the hkmc through its subsidiary, is the life annuity scheme ( las ). the scheme aims to provide a financial solution to retirees who prefer to convert their lump sum savings into a steady stream of cash flows that are not affected by the fluctuations of the financial markets or how long they live. in other words