Federal Reserve System

Stimulus Vs. Bailouts?
July 17, 2009

Last week, the Treasury Department quietly announced it was moving ahead with plans to purchase toxic assets from banks, but in scaled-back form. To my colleague John Judis, this must have been welcome news. For months now, he and I have debated whether President Obama’s efforts would be best spent fixing the financial sector or reviving spending by consumers and businesses.

Bank Shot
July 08, 2009

Congress's attempts to deal with the housing crisis this spring created surprising rifts within the financial industry, particularly between big banks and investors (at hedge funds and elsewhere).

Borrower's Remorse
July 03, 2009

How many times have you heard that the key to reviving the economy is fixing the banks? The thinking usually goes: If the banks are fixed--if bad loans are taken are taken off the books, and if regulations are put in place to prevent risky new loans--then they will resume lending to consumers who will buy cars and homes, and to businesses that will invest in plants and hire new workers. That's probably why Washington has spent the last six months proposing bank reforms, but not worrying about whether the first stimulus adopted is going to be sufficient. In my opinion, that's a mistake.

Are We Too Hard On Greenspan? (hint: Probably Not.)
June 27, 2009

In a thoughtful post about the former Fed chairman, Brad DeLong writes: There is, however, active debate over whether there was a fourth mistake: whether Alan Greenspan's decision in 2001-2004 to push and keep nominal interest rates on Treasury securities very very low in order to try to keep the economy near full employment was a fourth mistake. Should Alan Greenspan have kept interest rates higher and triggered a much bigger recession with much higher unemployment back then in order to head off the growth of a housing bubble?

Why We Need a Second Stimulus
June 26, 2009

Our country’s unemployment rate, which has risen every month this year, now stands well above the worst case scenario of the Treasury Department’s stress tests. Yet we are inundated each month with reports that, in spite of a rising rate of unemployment, the slump has "bottomed out” or is even over.

Don't Worry About Inflation. Really. Don't.
June 26, 2009

One camp of critics of the Fed's credit easing policies has argued that the sharp increase in the money supply will lead to much higher inflation down the road.   But with rates on 10-year Treasurys on the decline since early June, the rhetoric from inflation hawks has tapered off. The pullback on both counts is probably related to fresh signs that the global slowdown is still pretty entrenched. The latest evidence being a particularly gloomy forecast from the World Bank this week.   And now some new research from the St.

A Repo Market Overhaul
June 24, 2009

The FT reported earlier this week that the Fed is considering an overhaul of the $5-trillion a day repo market, which banks use to get short-term funding: "People familiar with the Fed’s thinking say it is looking into the creation of a mechanism to replace the clearing banks – the biggest of which are JPMorgan Chase and Bank of New York Mellon – that serve as intermediaries between borrowers and lenders. ... The clearing banks stand between the parties, providing services such as valuing the collateral and advancing cash during the hours when trades are being made and unwound.

Did Bank Lobbyists Write Obama's Reform Proposal?
June 18, 2009

What is the essence of the problem with our financial system--what brought us into deep crisis, what scared us most in September/October of last year, and what was the toughest problem in the early days of the Obama administration? The issue was definitely not that banks and non-banks could fail in general. We're good at handling some kinds of financial failure. The problem was: a relatively small number of troubled banks were so large that their failure could imperil both our financial system and the world economy. And--at least in the view of Treasury--these banks were so large that they cou

Now We Know
June 17, 2009

Spies: The Rise and Fall of the KGB in America By John Earl Haynes, Harvey Klehr, and Alexander Vassiliev (Yale University Press, 637 pp., $35) If one were trying to define the lowest point in the long and venerable tradition of American anti-communism, surely it came in 2003, with the publication of Ann Coulter's Treason.

Today's Foundation, Tomorrow's Crisis: The Geithner-Summers Proposals
June 15, 2009

Writing in the Washington Post this morning, Tim Geithner and Larry Summers outline a five point plan for dealing with the underlying problems in our financial system, titled "A New Financial Foundation."  The authors are not completely clear on what they think caused the current crisis, but you can back out some points from their reasoning--and the implicit view seems quite at odds with reality. Their view: Regulation is overly focused on safety and soundness of individual banks. Reality: There was a complete failure of safety and soundness supervision.  This must be fundamental to any financ

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