Fed Puts Treasury on the Spot With Loan Initiative
The central bank is willing to lose money, while the department would like to get it back.
Not on the same page.
Photographer: Andrew Harrer/Bloomberg
There is an important subtext to the Federal Reserve’s announcement on Thursday that it would provide up to $2.3 trillion in loans to prop up the economy. It’s not just that the central bank is diving into uncharted waters by buying “fallen angels” and municipal debt. Nor is it that the amount of firepower being thrown at the economy is unprecedented.
It is that the Fed is using the announcement to put pressure on the Treasury Department. The two institutions, which need to be in sync about the bailout, are not right now. To put it simply, Treasury believes that after the crisis is over, the government should be able to recoup — and perhaps even turn a profit on — the loans it will be making. The Fed believes that this crisis is so dire that the government needs to be willing to lose money to keep the country from falling into a depression.