The free flow of financial credit — our everyday lives depend upon it — is a confidence game. It may be honest, but it’s still a game, one in which nobody knows everything about anybody else’s cards. Ignorance is not only part of the game, it’s the secret of its success. That’s why we’re sorry that a glaring light has been thrown on the Federal Reserve’s discount window, a behind-the-scenes operation that contributed to economic stability merely by existing. Bankers knew that it was there if they needed it; they didn’t need to know who was lining up at it.

Unless we’re persuaded otherwise, our position is that, during the credit crisis that heated up in 2007,  the discount window was a bulwark standing between the nation and its financial collapse. We’re sorry to see that its actions are now being scrutinized for political impropriety when,  as even one critic admits, the partial disclosures that the Fed has had to make pursuant to a court ruling do not support conclusions one way or the other.

Charles Calomiris, a finance professor at Columbia University who has studied discount window lending during previous crises, said the Fed had not released enough information for the public to determine whether some of the recipients were propped up inappropriately and should have been allowed to fail more quickly.

“Do we know whether the Fed did that? No, we don’t,” he said. “But the Fed has become more politicized than at any point in its history, and I do worry very much that a lot of Fed discount window lending may just be part of a political calculation.”

We sense that this Times article, by Binyamin Appelbaum and Jo Craven McGinty, does not provide a full context for evaluating the reported inuendo.

Drop me a line at rjk@dailyblague.com
This entry was posted on Tuesday, April 5th, 2011 at 8:00 pm.