Quantum Windbag
Gold Member
- May 9, 2010
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Interesting article. Did you hope no one would actually read it (as is a rather bad practice on this board)??
A few excerpts, just for edification:
Economists say these programs pose little risk to U.S. taxpayers and that the risk of another financial crisis is far greater.
Under this program, a foreign central bank can sell a specific amount of its currency to the Fed and receive dollars, which it can then lend to commercial banks in its jurisdiction. The foreign central bank promises to buy back its currency from the Fed at the same exchange rate at a certain date, so the Fed doesn't make or lose money on currency fluctuations. The foreign central bank pays interest to the Fed.
The foreign central bank must repay the dollars, even if the commercial bank it loaned them to defaults. The only way the Fed would lose money is if the foreign central bank defaults. The risk of that "is remote," Reinhart says.
The Fed set up this swap facility in December 2007 when the financial crisis was beginning, and extended it to more than a dozen central banks. It closed the program in February when it looked like the storm had passed. It lost no money on the program. In fact, it earned almost $5.8 billion in interest on central bank liquidity swaps in 2008 and 2009.
Are you going to try to tell me that no US money is currently going to the EU, or Greece, through the IMF? Or that we are not a risk in doing this? I am pretty sure that little risk is not the same as no risk, which is the claim of the Doc.
Also, the need of this is debatable, as is the risk. Just because some Fed official is saying that central banks rarely default does not indicate the risk in this particular instance. Most banks in the US are stable, but we have the FDIC there because the risk is not 0, and they can go in and close banks if they think the risk is too high. If the only standard was that it rarely happened we wouldn't need the FDIC or the IMF.