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The Fed Tries to Confuse the Record in Battle with Bloomberg | Dean Baker

Yesterday Fed chairman Ben Bernanke attacked Bloomberg claiming that its reporting was misleading. It looks like the Fed missed the mark on just about every issue.

Perhaps the most important issue is the Fed’s claim that it did not lend at a below market rate to banks, thereby effectively giving them a subsidy. In fact, it is almost definitional that the rate did provide a subsidy.

No one forced the banks to borrow from the Fed. If they had better options, they would have borrowed elsewhere. Instead the Fed made large amounts of money available to banks at a time when liquidity carried an enormous premium. This meant that the banks could relend the government’s money to others and earn a substantial profit.

This lending may have been justified to stem the financial crisis, but in principle the government could have imposed conditions (e.g. real caps on executive pay, downsizing the too big to fail banks, modifying mortgages) on the banks as the price of getting access to credit at below market rates. Bernanke and Congress did not seek to impose such conditions.

Given Bernanke’s strenuous opposition to the release of data on the bailout programs it would be interesting to know if he now feels that it is more difficult for the Fed to conduct monetary policy.

(Source: theamericanbear)

Filed under economy economics politics news Federal Reserve end the Fed bailouts banks bankers banksters Ron Paul 2012 Bernanke

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