The Wall Street Journal may not be socially conservative, but they are fiscal conservatives and have defended the Federal Reserve from attacks from both sides of the political aisle. That was until the Fed called for giving Fannie and Freddie more power over the housing market. I guess it was a bridge too far.
As America’s central bank, the Fed is responsible for monetary policy and bank regulation. During and since the financial panic, and in the name of preventing a meltdown, the Fed has bought mortgage-backed securities to provide liquidity for housing and keep down mortgage rates. This is a form of credit allocation and should be winding down, though it is at least arguably within the emergency purview of monetary policy.
It is a far different matter to tell Congress and the executive branch that they ought to rescue homeowners who borrowed more than they can afford to repay, or strong-arm banks to loosen credit standards for borrowers, or further entrench government-sponsored enterprises (Fan and Fred) that have already cost taxpayers $142 billion in losses. These are core political questions that belong to elected officials.
Read the whole thing, there’s a bit of inside baseball that may seem a bit over the head of the average news consumer. Isn’t that unfortunate? I think that the Democrats are counting on economic illiteracy as their last best hope of winning in November.
This seems beyond the FRB’s statutory authority, but with Obama in power the law doesn’t count so much as it once did.
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