Via Marginal Revolution we read that Willem Buiter is blogging. It's off to a good start. Here's a slice of a recent post titled "If there’s a credit crunch, leave the Fed Funds rate alone, raise the discount rate and use the discount window".
The central bank (the Fed, as the central bank faced most directly with the mess of the sub-prime mortgage debacle – a mess to a large extent of the Fed’s making) therefore most respond to a credit crunch by guaranteeing the liquidity of a wide range of instruments held by private parties, instruments that without the Fed’s intervention would become illiquid. The Fed should do so by following Bagehot’s 150-year old advice. With one slight clarifying amendment, that advice is as follows: in times of financial stress and distress, lend freely, at a penalty rate, against collateral that would be good in normal times but may by heavily impaired in the extraordinary times prompting the Fed’s intervention.
As they say, read the whole thing.
Leave a comment