Tuesday, March 24, 2009
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.
``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,'
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.