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

Yes, I just have a few comments. In reading through this memo and hearing the presentation this morning, I think that these are fantastic questions. They deserve a lot of research and analysis. Just to echo Vice Chairman Geithner, they cannot easily be answered in a forum like this one. What is happening is that we start out looking at these questions, which just spawn more and more questions; so we end up with an even longer list of questions. The short-term strategy seems perfectly reasonable, somehow tied to an exit strategy maybe next year. So I didn’t have any problems with that as outlined by the Chairman.

When we get down to approaching a more detailed analysis of what we want to do overall, it brings up very difficult questions of what the optimal regulatory environment is. I think that we all think the regulatory environment in the United States is not optimal right now. Also, in a world of increasing globalization, it is not so clear how you should set up your regulatory structure. This is a once-in-a-generation chance to possibly reformulate the regulatory structure. I wouldn’t hold my breath on that. I think the Congress does not have a great record of dealing with issues like this. These issues are complicated, and it is very hard to get agreement on them. But you would like to have a benchmark. I think that one is out there in the economics literature about what that environment should look like. That is what we could possibly work on over the next nine months or so.

Then I have another comment. When we are evaluating these programs, we have to think about whether these programs have been effective and to what extent. How do we measure success? One of the comments earlier was that the mere existence of the programs might be success in some sense. In a model, that is going to work. Even if you take it out of existence, because the market knows it’s there and you can put it back into existence in the future, it will have exactly the same effect. Whether or not you have the program in place, the equilibrium is going to be the same in a lot of models, so the effects would still be there. If it is just the potential of putting the program in place that is considered successful, then maybe it is not critical whether it is in place but priced not to be used or whether it is actually taken out of existence temporarily.

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