Friday, 18 July 2008

Papering over the window

The Economist points out something really cute about the GSE's having access to the FED window:
The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.
I just love the way unintended consequences sometimes result from attempts to make things better, don't you? But fortunately no one could think that Fannie or Freddie would abuse their access to the window, so the Economist is just engaging in idle speculation, isn't it?

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