NCPA - National Center for Policy Analysis


June 3, 2009

As the housing collapse has turned into a financial crisis, and the financial crisis into an economic calamity, the government has tried furiously to keep the country free of breadlines and trash-can fires. Two of its interventions -- the $700 billion bank bailout known as TARP and the $787 billion stimulus package -- have inspired levels of partisan acrimony and journalistic scrutiny befitting a war vote. But neither approach the civic munificence displayed by the Federal Reserve, says the Atlantic.

In the past year, the Fed has undertaken interventions in the economy broader and deeper than anything attempted since its founding in 1913.  And with the credit system paralyzed, the central bank increasingly looks like the lender of both first and last resort.  Take the examples below:

  • In October, the Commercial Paper Funding Facility was given up to $1.8 trillion to buy commercial paper (short-term debt that companies use to fund day-to-day operations like payroll).
  • Up to $1.45 trillion was appropriated to buy debt from Fannie Mae, Freddie Mac and the Federal Home Loan Banks, as well as mortgage-backed securities from Fannie, Freddie and Ginnie Mae (expanded from an initial $600 billion commitment in November 2008).
  • The Term Asset-Backed Securities Loan Facility (TALF) was given up $1 trillion to spur consumer lending by purchasing securities back by credit cards, student loans, auto loans and other debt.

Among these and a dozen more programs, the Fed will be on the hook for trillions of dollars, says the Atlantic.  The government expects to be repaid for most of these commitments, of course, with interest.  But that's the tricky part.

Largely unencumbered by congressional meddling, the Fed has in most cases refused to reveal the beneficiaries of its largesse lest panicky investors and depositors lose faith, says the Atlantic.

Source: Timothy Lavin, "Cash Machine," The Atlantic, May 2009.

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