The Fed’s Nifty Little Ruse

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The Fed has offered to to advance banks cash to ease their credit problems. It began the program in December in the hope of helping banks free up capital to make loans and help off-set huge subprime losses. By most accounting the facility has put out $50 billion to US banking firms.

The Fed indicated that it would take collateral from banks in the form of Treasuries, Federal agency bonds, and mortgage-backed securities.

As it turns out, much of what the Fed is taking in exchange for capital is simply loans which the banks have made. That may cost tax payers a few bucks. Some of those loans are not worth much.

Douglas A. McIntyre