Fed regulates money supply (loans)created by commercial banks, and has the instruments for doing so at its disposal. The trouble is there is so much liquidity created by non bank institutions these days to which comparable commercial bank collateral, such as reserve requirements etc., simply do not apply. There is no way commercial banks could have gotten away with the 1:30, and more, leverage levels that investment banks have been able to function on. What is becoming increasingly obvious is that twenty first century financial markets require twenty first century regulations. Fed is asked to become involved in bailing out institutions it never had any control over, or dealings with.
Comment by Ravi Mehra - September 16, 2008 at 10:47 pm
Wednesday, September 17, 2008
Thought for the day
Today's thought for the day comes from a comment in a WSJ blog: