Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Yes. Thank you, Mr. Chairman. I agree with the basic point that it’s very important to recognize that we do not want a lot of these facilities to be permanent and that at some point we will need to remove them. I do worry about the issue of creating the kind of moral hazard from an idiosyncratic viewpoint, and that’s very different. There are two aspects to moral hazard. One is moral hazard that is created by providing a backstop when there’s a systemic problem. But you expand this tremendously if you have a backstop for an idiosyncratic episode or for idiosyncratic episodes for individual institutions. So we have to think very seriously about the temporary nature of many of these measures.

On the other hand, I just don’t see the stress dissipating. I’m getting ready to go back to academia, and it’s going to be a much quieter life for me. I really am extremely nervous about the current situation. We’ve been in this now for a year; but boy, this is deviating from most financial disruptions or crisis episodes in terms of the length and the fact that it really hasn’t gotten better. We keep on having shoes dropping. So although there’s an issue that we’re going to need to get out of many of these facilities, the reality is that we’re in this, and I’m not anticipating that this is going to go away quickly. I hope that it will. I just don’t understand the argument that actually thinking of more ways to be on top of this and being creative about it will indicate that we want to do something permanent. I just don’t see that.

I am also a bit puzzled by the objection to these options. I think that they worked quite well during the Y2K episode. I think they are more targeted. I don’t think they are a major deal. On the other hand, I just don’t see where the problems are. I do recognize that there is a lot of work that we have to do to basically make sure that we’re managing credit risks better, particularly with an extension of the maturity of the TAF loans, but I do not think that this is a situation in which we can just sit back and get everything perfect before we put in these facilities.

So there are a lot of issues here. Maybe just because I’m having a bit more trouble sleeping at night, I am supportive of going in this direction. I think that we have to keep on pushing, and I don’t think that this in any way encumbers us or hinders us from removing these when we need to do so. I hope that happens soon, but I think the reality is that we’re still in very difficult times. Thank you.

Keyboard shortcuts

j previous speech k next speech