Is central bank independence gone?

It’s another bail-out of sorts today, although you won’t hear it described as such:

The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve. The program will consist of a series of Treasury bills, apart from Treasury’s current borrowing program, which will provide cash for use in the Federal Reserve initiatives.

Here is the link.  How long will it take to win back Fed independence?  There used to be talk that "The Paulson Plan" would centralize various kinds of financial regulation in the Fed.  But, as it turns out, under the "beta" version of the plan, the Fed goes hat in hand to…Paulson.  I guess that’s why they call it The Paulson Plan.

Comments

If I get it correctly, the Presidential candidates don't share the same opinion on what would be a proper solution to the current financial crisis. Therefore, I guess the solution will come after the elected administration has sorted out in what order to do with all the pressing charges. Both sides seem to be eager to change things, and this appears to be on the upper end of the agenda, so I'm assuming the answer won't come after February.

i don't see how this has anything to do with independence. the whole point of independence is (1) circumvents dynamic inconsistency from myopic political pressures (2) stops the central bank from being forced to finance the government's debt. neither is currently the case.

This is getting to be an expensive few days - how soon before the rating agencies place the US's AAA rating under review?

Maybe you forget: "If you owe the bank a million, you have a problem. If you owe a thousand billion, they have a problem."

Maybe the independence of the US Treasury is at risk as much or more than the independence of the Fed?

Joe,

I would guess a is most likely very true, if only as a hedge to other exposure. I overstated when I said 'whole reason', as the fact that AIG bonds sit in so many portfolios, it would effect money market funds, among many other things, I'm sure was involved in the thinking process. On b tho, I think you're right. I wrote too hastily. A conservatorship would not have changed much on the CDS they wrote.

Another problem with a treasury conservatorship, besides being illegal, I believe, is that AIG is regulated by states and a direct federal takeover would have created a total regulatory mess. It just made more sense for the Fed to loosely interpret its charter. It really is no different than what the Fed did during the great depression, not that I approve of its actions. So there is precedent, while there is no precedent for treasury action without congressional approval.

I don't think I understand how this undercuts the Fed's independence. The Fed requested this new plan. I believe this is Helicopter Ben printing money, no?

Is it realistic?

Everything is decided by the market instead of any single human being’s personal feeling.
But opportunity and efforts are same important on the way to yr goal.
Like the aion gold performance in the market.

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