On Mar 15, 2008, at 10:25 PM, Sean Andrews wrote:
> On Sat, Mar 15, 2008 at 6:41 PM, Shane Mage <shmage at pipeline.com>
> wrote:
>>
>> On Mar 15, 2008, at 2:27 PM, Doug Henwood wrote:
>>> He's going to stop the
>>> Fed from doing what central banks are supposed to do (i.e. in
>>> Bagehot's words, lend freely against good collateral at penalty
>>> rates)?
>>
>>
>> But isn't this actually lending freely against collateral so suspect
>> that nobody else (ie., J.P. Morgan) will lend against it?
>>
>
> looks like it...but maybe there's something we don't know.
>
> http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080311/
> REG/110441751
>
> "Bloomberg)—The Federal Reserve plans to lend up to $200 billion of
> Treasury securities in exchange for debt including private
> mortgage-backed securities that have slumped in value as homeowners
> defaulted on their payments."
Bear Stearns is no longer, so this is all not even academic.
But thinking about Dean Baker and the Northern Rock thing - the British gov has assumed some risks from NR; it's now nationalized. The Fed assumed little real risk for Bear. And Bear was connected to many other crucial banks and other funds; if it went down, it'd taken a lot of other institutions with them. That's different from Northern Rock.
Doug