A Billion Here, a Thousand There (Critique)

The Fed’s Crisis Lending: A Billion Here, a Thousand There

(Critique)

http://www.nytimes.com/2011/04/01/business/economy/01fed.html?_r=1&ref=business

The crisis with the Federal Reserve could have been resolved easily with some simple solutions. The Required Reserve Requirement (RRR) is put into place by the fed so they can control the amount of money the banks must have on hand. If they see that there is going to be a lot of withdrawals of cash from the bank, then they could have changed that percentage to be less, so less bank money could be invested, and more of their money must be kept on had for cash.

I do not agree with the Fed releasing the names of the banks that needed loans. That may have compromised the whole system. For example, if I was at my bank and heard they needed a loan, then I would take out my whole savings and go somewhere else. The Federal Reserve only loaned the bank so much amount of cash, so if all of their customers started to do that, then it would diminish the loan and put the bank out of business. They failed that way by not being as secretive as they should have been.

I do not agree with him saying that smaller banks should have to rely on larger corporations to bail them out. This is where the most trouble arises in America, when people cannot handle themselves. Borrowing from the Federal Reserve is a weakness, but can be easily solved in the future by investing a less amount of money until the bank can become stable.

What was failed to mention that very few of those banks that got loans didn’t pay the Fed back, because they could not sustain themselves and went out of business. The article says JPMorgan and Wachovia both returned their money the next day and banks like Bank of America took a month, but eventually returned it.

Giving out all of this money is not as bad as it seems. The Federal Reserve is trying to protect our money, so we should be grateful. The billions of dollars they say they have lent out, they have gotten back. It saved investors from going overseas to other banks and losing the business to overseas competitors.

This article is not the whole cycle of how the Federal Reserve runs. It only deals with the discount window data and how it divides loans to banks in need. There is nowhere else saying all of the other different processes they handle. This discount window is the last chance for banks to turn around, and is at the end of the line for the Fed to do.

Matthew Kline