Traders often fixate on the appointment of a new Federal Reserve chairman. It was therefore no surprise that the news of Lawrence H. Summer’s nonselection was met with a pronounced financial market reaction. Especially notable was the 10 basis point drop in the 10-year Treasury yield. A 10 basis point, one-day change in the bond […]
Central bank independence is like motherhood and apple pie: Who can oppose it? We know from voluminous academic research that independent central banks tend to deliver better macroeconomic outcomes and in particular lower inflation. It is therefore unnerving that many members of Congress are calling for limits on the Fed’s powers, and even for a […]
The Treasury’s efforts to detoxify banks’ balance sheets have been a flop, to put it bluntly. Troubled Asset Relief Program (TARP) funds were initially earmarked to purchase banks’ bad assets, but confusion about finding the right price led to the plan’s abandonment. And now the much-touted Public Private Investment Partnership (PPIP), a program that would […]
Why haven’t banks begun to lend?
When the Bush administration finally persuaded Congress to approve the $700 billion Troubled Asset Relief Program in September, the main objective was for the Treasury to purchase the most “toxic” bank assets in order to get the banks to free up lending again. Later in October, the administration shifted course and decided the best way to achieve that objective was to use at least some of the funding appropriated by Congress to buy stakes in the banks themselves. But despite the promise of capital injections, anecdotal evidence suggests that the banks remain reluctant to lend, and in some cases are talking of using their new capital injections to buy other banks.