Tuesday, March 24, 2009

Maiden lane 

I was watching Michele Bachmann's latest video from Fox on the amount of extra-constitutional authority she feels Sec. Geithner and Federal Reserve Chair Bernanke had taken in the bailout. It might be worthwhile to recall what current Obama adviser Paul Volcker said about the Bear Stearns a year ago:

``The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices,'' Volcker said in a speech to the Economic Club of New York.

Fed Chairman Ben S. Bernanke last month agreed to lend against Bear Stearns securities, paving the way for JPMorgan Chase & Co. to buy its Wall Street rival. Bernanke, who worked with Treasury Secretary Henry Paulson to broker the bailout, last week defended the move as necessary to prevent ``severe'' damage to financial markets.

Volcker, the Fed chairman from 1979 to 1987, had implicit criticism for U.S. regulators and market participants who allowed ``excesses of subprime mortgages'' to spread into ``the mother of all crises.'' The Fed's Bear Stearns loan was unusual, he said.

``What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return,'' he said.

...``The extension of lending directly to non-banking financial institutions -- while under the authority of nominally `temporary' emergency powers -- will surely be interpreted as an implied promise of similar action in times of future turmoil,'

That $29 billion was an investment vehicle called Maiden Lane. A Scholarly A for those of you who can, without Google, tell me who was funded by Maiden Lane II and Maiden Lane III.

Give up? Hint: the answer requires three letters. It's in the paper a lot these days.

I'm reading through the history of the Banking Act of 1933. I landed on a Cato Journal article by William Shughart, explaining the Glass-Steagall provisions in something other than the omniscient regulator perspective. Seems to follow what I'm reading as well in Charles Ellis' The Partnership.

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