Re: Fed croons, acts
On Aug 17, 2007, at 9:06 AM, Michael Pollak wrote:
I only have one question: am I just inexperienced in reading Fed news releases, or has there been an unusual emphasis on the discount
window in the last two notices? Does this mark a change and return to earlier practice? My impression was that over the last couple of decades the discount window had become largely vestigial — that no bank wanted to borrow from it because it would stigmatize it as troubled, and that
its only remaining function was as a subtle sender of signals as to future tightening or loosening. But in these last few announcements, it
sounds like they actually mean for it to be used, as a substantial
alternative to lowering rates.
Yeah, it seems that way. You didn’t hear about the discount window
for a long time, and while I’m certainly no professional Fed watcher,
I don’t remember any move like this one. Some talking head on CNBC
just described the move as a “surgical strike” rather than a “carpet
bombing” - you know what he was getting at, but the metaphor is
weird, perhaps unintentionally venting some unconscious hostility
towards the financial markets.
I think the message was “we’ll bail out anyone in serious trouble,
but we don’t want to give everyone a free pass.”
Doug