If you take the way the Fed has used its discount window so far as legal, then you wouldn't think that Treasury and the Fed would need to go to the Hill for authority for a massive bailout of everyone else. I guess the institutions are beginning to run out of money, though. I'd like to see a few more collapses before there is a superbailout, but do admit that the way each rescue has been done so far hasn't really contributed to moral hazard too much; the shareholders at Bear and AIG, and management at Frannie, have essentially lost everything by going under government protection. Anyway, more skepticism about the use of the authority so far from Eric Posner, and don't miss this post by Steven Davidoff.
If I were the Fed, I'd get a retroactive blessing for the AIG takeover and for Bear too, for that matter, along with prospective bailout legislation. The retroactive blessing wouldn't make the takeovers okay when they were done, but it would probably moot any efforts to undo those arrangements (if a plaintiff could figure out a way to get standing, and noting that courts don't usually supervise bailouts, etc).
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1. Posted by fedgovernor on September 19, 2008 @ 9:53 | Permalink
David,
Prior to today, the way the Fed has "used its discount window" was to "loan money from it."
Seeing as how the Fed is a bank, the fact that it is loaning money from its window is hardly revolutionary. The recipient is unusual, but the act of loaning money is what the Fed is designed to do.
Now, what you have today is quite absurd. The Fed, a private bank, wants government to purchase its bad loans.
This is thievery on a massive scale the likes of which has never been seen before in mankind.
It is nothing less than the rich of this country stealing from the poor.
It is legal grand larceny and any politician who votes to do this will never, ever get my vote.
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