The Treasury Department should take a more active role to deal with the meltdown in financial markets that threatens to deepen the U.S. economic slowdown.
President George W. Bush and Treasury Secretary Henry Paulson have resisted calls to use public funds to stem the surge in home foreclosures which are at the root of the financial crisis. The Federal Reserve has spearheaded efforts to ease the credit crunch by reducing interest rates and by becoming the lender of last resort for the biggest Wall Street dealers.
President George H.W. Bush, the current president's father, signed the 1989 law which created the Resolution Trust Corp to dispose of the assets of insolvent savings and loans banks. From 1986 through 1995, 1,043 savings banks with over $500 billion in assets failed, costing taxpayers $75.6 billion, according to a Federal Deposit Insurance Corp. analysis.
The Fed last week extended credit to non-banks for the first time since the Great Depression, lending $28.8 billion as of March 19 to the biggest securities firms to try to stabilize capital markets.
For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms. Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence.
The only tool left may be for the Fed to help facilitate a RTC-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. While purchasing the some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.
The Fed, the Bank of England and the European Central Bank are exploring the feasibility of using taxpayers' money to shore up the mortgage-backed securities market, the Financial Times reported on March 22, without saying where it obtained the information.
President George W. Bush and Treasury Secretary Henry Paulson have resisted calls to use public funds to stem the surge in home foreclosures which are at the root of the financial crisis. The Federal Reserve has spearheaded efforts to ease the credit crunch by reducing interest rates and by becoming the lender of last resort for the biggest Wall Street dealers.
President George H.W. Bush, the current president's father, signed the 1989 law which created the Resolution Trust Corp to dispose of the assets of insolvent savings and loans banks. From 1986 through 1995, 1,043 savings banks with over $500 billion in assets failed, costing taxpayers $75.6 billion, according to a Federal Deposit Insurance Corp. analysis.
The Fed last week extended credit to non-banks for the first time since the Great Depression, lending $28.8 billion as of March 19 to the biggest securities firms to try to stabilize capital markets.
For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms. Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence.
The only tool left may be for the Fed to help facilitate a RTC-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. While purchasing the some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.
The Fed, the Bank of England and the European Central Bank are exploring the feasibility of using taxpayers' money to shore up the mortgage-backed securities market, the Financial Times reported on March 22, without saying where it obtained the information.
Story contributed by Bloomberg: Read More 1 & Read More 2
