FX MONETARY POLICIES
Fettig wrote that “the Fed was still less than 20 years old and many likely remembered the arguments put forth during the System’s founding, when some advocated that the discount window should be open to all comers, not just member banks.” In Australia and other countries, the central bank was then a s su m ing commercial as well as central bank functions.
Section
was eventually repealed, the
13(b) but
Federal
Reserve Act r et a i ne d enough vestiges of it in 2008 to allow the Fed to intervene to save a variety of non-bank entities from b a n k r u p t c y . The problem was that the tool was applied selectively. The recipients were major corporate players, not local businesses or local governments. Fettig wrote: Section 13(b) may be a memory, ...but Section 13 paragraph 3... is alive and well in the Federal Reserve Act. . . . [T]his amendment allows, “in unusual and exigent circumstances,” a Reserve bank
to advance credit to individuals, partnerships and corporations that are not depository institutions.
In 2008, the Fed bailed out
investment company Bear Stearns and insurer AIG, neither of which
“individuals, partnerships and corporations” with
the vaguer
phrase “any program or facility with broad-based eligibility.” As explained in the notes to the bill: Only Broad-Based Facilities Permitted. Section 13(3) is modified to remove the authority to extend credit to specific i n d i vi d u a l s , part n e r s hi ps and corpora- tions. Instead, the Board may authorize credit under section 13(3) only under a program or facility with “ broad-ba se d eligibility.”
In 2009, President Obama proposed that the Fed extend its
largess to the cash-strapped cities and states battered by the banking crisis
was a bank. Bear Stearns got almost $1 trillion in short-term loans, with interest rates as low as 0.5%. The Fed also made loans to other corporations, including GE, McDonald’s, and Verizon.
In 2010, Section 13(3) was modified by the Dodd-Frank bill, which replaced the phrase
22 FX TRADER MAGAZINE January - March 2014
What programs have “broad- b a s e d eligibility” is not clear from a reading of the Section, but
it isn’t individuals
or local businesses. It also isn’t state and local governments.
NO OTHERS NEED APPLY
In 2009, President Obama proposed that the Fed extend its largess to the cash-strapped cities and states battered by the
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