Tuesday, May 25, 2010

Costs Of Fed's Actions In Financial Crisis: CBO Study

The Federal Reserve System used its traditional policy tools to reduce shortterm interest rates and increase the availability of funds to banks, and it created a variety of nontraditional credit programs to help restore liquidity and confidence to the financial sector. In doing so, it more than doubled the size of its asset portfolio to over $2 trillion and assumed more risk of losses than it normally takes on.
In CBO’s estimation, the fairvalue subsidies conferred by the Federal Reserve System’s actions to stabilize the financial markets totaled about $21 billion.

The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis by Milton Recht

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