Kicking the Can down the Road

Econbrowser: Kicking the Can down the Road: "So to me, it seems that the Administration is engaged upon a delaying action, and hoping to unload this problem upon the next Administration (an understandable, albeit less than fully public-minded, impulse). Meanwhile, it maintains the best 'optics' in terms of making it look like it's not taking on risks to government funds in order to help out financial firms. In so doing, it's allowing an even bigger build-up of contingent liabilities, surreptitiously. But by virtue of being less transparent, it threatens to present a bigger, and more unpleasant, surprise for future policymakers (of either party)....

Second, whatever the reasons for the Administration's actions, I think a very serious problem is that, by virtue of the Administration's abdication of a substantive role (see Hubbard's comment on this point), the Fed is lending to entitites it does not regulate. The Bear Stearns collapse might have been seen as a case where the Fed had to undertake unconventional actions, because of the rapidity of developments. But with the Administration providing an uncompromising stance, who will step in the next episode? If it's the Fed again, then Blinder's critique will take on heightened relevance."

Norton's comment: the use of the Fed Home Loan Banks as a vehicle to refinance mortgages is a not so transparent way of using tax payer money without any vote or review by the Public. This continues the Bush Administration's technique of running end runs around transparent democratic procedures and assures the magnitude and breadth of these public obligations will not be know until the start of the next administration.