Bernanke Tries to Define What Institutions the Fed Could Let Fail

August 18, 2008 by · Leave a Comment
Filed under: Economic News 

Oh man, this was some good humor to read. It was like some children’s story where they learn they have great power and then they have to decide how to use it or whether it will be for good or bad. Some of the quotes in this are too good like “Federal Reserve chairman has repeatedly expanded the central bank’s protective role, turning its balance sheet into a parking lot for Wall Street’s hard-to-finance bonds (read: Junk)orThe lack of clearly defined limits may put the Fed’s independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts“.

Who needs TV when you have reading material like this? Next article will be titled “Congress finally knows who issues the money”. Pure comedy too see how this one will play out, I agree they have set a precedent on bailing out the 5th largest investment bank so I think that sets the bar pretty low. Maybe I should start a bank and see if I bring them some paper that has “IOU” crayoned on it, they will give me some treasuries or maybe a full bailout happy meal. Okay now with my rant/commentary out of the way, here is the Bloomberg article.

Article:

Ben S. Bernanke is still trying to define which financial institutions it’s safe to let fail. The longer it takes him to decide, the tougher the decision becomes.

In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank’s protective role, turning its balance sheet into a parking lot for Wall Street’s hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac.

The lack of clearly defined limits may put the Fed’s independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts that might otherwise require politically sensitive appropriations and taxes.

“There is some hard thinking that needs to be done,” Philadelphia Federal Reserve Bank President Charles Plosser said in an interview last week. “The Fed has a terrific reputation as a credible institution. We have to be cautious not to undertake things that put that credibility at risk.”

The expanding role of central banks will be the hottest topic in the room when Bernanke addresses his counterparts from around the world at the Kansas City Fed’s Jackson Hole, Wyoming, symposium Aug. 22.

Since taking on $29 billion in Bear Stearns Cos. assets to facilitate the failing firm’s takeover by JPMorgan Chase & Co., Bernanke has made several moves that imply further expansion of the central bank’s mission.

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