WSJ: Volcker: Fed’s ‘Extreme’ Intervention ‘Raises Some Real Questions’

[El Pinko]

http://blogs.wsj.com/economics/2008/03/18/volcker-feds-extreme-intervention-raises-some-real-questions/


Volcker: Fed’s ‘Extreme’ Intervention ‘Raises Some Real Questions’
Former Federal Reserve Chairman Paul Volcker said the Fed’s decision to lend money to Bear Stearns Cos. to keep it from collapsing is unprecedented and “raises some real questions” about whether that’s the appropriate role for the Fed. The wisdom of the decision depends on “how severe this crisis was and their judgment about the threat of demise of Bear Stearns,” Mr. Volcker said on the Charlie Rose Show on Tuesday evening. “That’s a judgment they had to make and an understandable judgment.” It is “absolutely” not “what you want for the longstanding regulatory support system.”

Excerpts:

Volcker: We’ve seen the Federal Reserve take more extreme measures in some respects than any that have been taken in the past to deal with a financial crisis, which raises some real questions about not only for the Federal Reserve and its authorities, but for the structure of the financial system… The Federal Reserve is designed to lend to banks. And the banks were considered to be at the center of the financial system, and lend liquidity, provide cash in return for good assets, when a bank got in trouble. Now they found in this case, where some of the investment houses were in trouble, and prototypically Bear Stearns … it’s lightly regulated by the SEC or some other, but not for the same reasons. They haven’t got the concern over the stability of those things….We’re going to lend to them and protect them, shouldn’t they be regulated?

Rose: Is it a wise precedent?

Volcker: Whether it’s wise or not depended upon how severe this crisis was and their judgment about the threat of demise of Bear Stearns. That’s a judgment they had to make and an understandable judgment. There is no question about it.

[defendandprotect]

1. And Volker avoids the real issue: These are decisions for CONGRESS to be making .. .

it's taxpayer money --- it's a political decision ---
it should be made by representatives who can be held accountable ---
not by a private bank ---

[snot]

2. wow, pls forgive the digression, but I covet those glasses. nt