Redstate

Fed starting to take on roles that it is not supposed to when it decides to play investment banker. I know some have described what they did as a bailout. I actually read your detailed summary of what they did and the way I see it is that the Fed played investment banker. Nowhere can someone find me a place where it says that one of the roles of the federal reserve is to play investment banker in cases where a troubled financial institution is involved. I find this step to be rather extraordinary and I for one am troubled by the power the Fed chairman seems to think he has even if it was a difficult decision to make.

Was it over when the Germans bombed Pearl Harbor

The Provocateur

Frist, the Fed is responsible for the health of the banking system. The risk in letting B/S fail in an unorderly fashion (read that chaos) would have been that there could have been a situation that quickly moved to a major run on banks. The issue had quickly become one driven by emotion and rumor rather than hard facts. Once those get started, they are much harder to regain control over.

The Fed's charter doesn't directly provide for their action but (my second thought) I believe that as history looks back on their action, it will record that that single act may well have saved an extrodinary pain that could have enveloped much of the nation.

I don't want to see this kind of action happening anymore than in extreme, unique circumstances. That said, from what I can see so far, I'm will to cut them some slack so far.

Bernanke is showing more courage than your the elected branches of government will here. However the Fed's creative approach is what you need to have when you are dealing with risk management rather that compliance.

I spent several years in risk management with a inter-back entity set up to reduced settlement exposures and in the market and thus has to deal closely with the regulators when they were looking at systemic risk issues.

What Bernanke and FRBNY are attempting is to look at the scenarios down the line and see what can be done now to avoid the worst of the outcomes. And trust me, when you look at multiple contemporaneous failures it is very scary, though with a bit of tidy work ahead of time the he might steer us way from turning a bit of heavy weather into the appocolypse.

Blackhedd I have found your analysis on this issue extraordinary and fascinating.

From your analysis I see that this was imperative and an extremely rare action by the Fed...

The question I have as a lay citizen... what are the consequences besides absolute loss of fortunes for the B/S family of investors? It seems almost as if Bernanke is bracing us for inevitable realities in the future...

"That was an extraordinary thing to do, I thought about it long and hard," Bernanke said, referring to the funding. "I hope this is a rare event, I hope this is something we never have to do again."

I'm not a tinfoil hat wearing HWMNBN supporter...but I can't help but think that the change in policy and overstepping bounds either gives the Fed tighter hold on the U.S. Economy by entangling their right to print/adjust the values of our economy and manipulate the dollar to their advantage...or our Fed backed financial system is overextending their strength and putting an undue burnden on future generations for debts unpaid or written off as "loss" in the investment category which ultimately weakens the U.S. Economy through a 10 year ripple effect.

"I thought about it long and hard,I know I don't have Bernanke's genius but wasn't this decision made within a few days? Is that a relative eternity for the consequences of this decision in the world of the Fed?

Can you explain it to me as if I were a child or at least recommend something to read to understand the Fed's role and why I shouldn't shake my head thinking "the sins of my fathers..."?

I really am trying to wrap my head around this.
"Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives. " -James Madison