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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who started this subject8/13/2004 12:03:42 AM
From: CalculatedRisk  Read Replies (14) of 116555
 
The FED is looking at ways to loan money to IPCs and possibly take over their credit risk (IPC: individuals, partnerships, and corporations)

The Scope of Monetary Policy Actions Authorized under the Federal Reserve Act (FRB: August, 2004)
federalreserve.gov

'In "unusual and exigent" circumstances, (and after certain other restrictions are met), the tools of monetary policy could be expanded. In making loans to IPCs, the Federal Reserve would be able to accept a wide variety of private-sector credit instruments as collateral. In open market operations, the Federal Reserve might be able to expand its purchases to include bills of exchange other than those meeting "real bills" criteria.

An important economic issue in both usual and "unusual and exigent" circumstances is whether the Federal Reserve can take onto its balance sheet the credit risk of assets that are purchased or that are used as collateral in loans to depositories or IPCs. Except in unusual and exigent circumstances, it seems to be easier for the Federal Reserve to take (nondepository) credit risk onto its balance sheet in the case of asset purchases than in the case of loans. But even if the Federal Reserve could accept credit risk onto its balance sheet, having the Federal Reserve directly involved in the evaluation of credit risk and influencing the allocation of credit across sectors of the economy would involve its own problems.'
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