[quote=barnaby33]First of all, from the Fed does all money flow. The Fed sets interest rates and bank reserve requirements. It could have easily said, no you can’t make these risky loans, by raising reserve requirements. SK you obviously don’t remember the Fed issuing exemptions to the big banks allowing them to loan more than 10% of assets to their pet investment funds in 2008. Previously that was verboten but the Fed allowed it, to buy more time. Essentially to deepen the crisis that already had to happen.
True it didn’t loosen credit quality, but it certainly didn’t object to Congress doing so either. It had a choice, to uphold the legal/credit nexus that you say they had no part in creating, or along with the Treasury they could print to inflate to allow all the bad actors in the system off the hook, also known as changing the rule book when the game moves against your customers, the large banks. Where do you think the money came from to buy all that Phony/Fraudie debt? Taxes collected? The Fed printed it.
Josh[/quote]
No, the Fed can’t say “you can’t make risky loans”. Other governmental agencies can. The only interest rate the Fed sets is the discount rate. Not prime. Not CD rates. Not Fed debt rates. Not mortgage rates.
The reserve requirement essentially applies to checking accounts, not savings or CDs. It’s really a non-issue. I don’t recall the Fed easing any investing requirements that they don’t have the authority over.
The Fed rarely gets involved in politics. The most recent statements by Bernanke (and similar warnings he’s made before Congress) are about as much control over congress as he has.
You’ll have to point out where Congress loosened credit quality during the run-up to the crisis. I’m not claiming now, nor have I, that the Fed had no part, or couldn’t have done something different that would have changed things. But they simply do not have either the charge nor the authority to have changed things much. Other federal agencies certainly did (the SEC for instance). But ultimately, it was not a regulation driven crisis, more so driven by repeal of regulations and driven by the market itself.
