Bernanke Struggles to Define What Financial Institutions Fed Can Let Fail

[Purveyor]

Aug. 18 (Bloomberg) -- Ben S. Bernanke is still trying to define which financial institutions it's safe to let fail. The longer it takes him to decide, the tougher the decision becomes.

In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank's protective role, turning its balance sheet into a parking lot for Wall Street's hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac.

The lack of clearly defined limits may put the Fed's independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts that might otherwise require politically sensitive appropriations and taxes.

``There is some hard thinking that needs to be done,'' Philadelphia Federal Reserve Bank President Charles Plosser said in an interview last week. ``The Fed has a terrific reputation as a credible institution. We have to be cautious not to undertake things that put that credibility at risk.''

The expanding role of central banks will be the hottest topic in the room when Bernanke addresses his counterparts from around the world at the Kansas City Fed's Jackson Hole, Wyoming, symposium Aug. 22.

Since taking on $29 billion in Bear Stearns Cos. assets to facilitate the failing firm's takeover by JPMorgan Chase & Co., Bernanke has made several moves that imply further expansion of the central bank's mission.

Student-Loan Collateral

He granted a congressional request to accept bonds backed by student loans as collateral for Fed securities loans. And he didn't object when Congress inserted a provision into the housing bill signed into law last month that makes it easier for the Fed to lend to failed banks under government control.

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BLOOMBERG: http://www.bloomberg.com/apps/news?pid=20601103&sid=a0v71H6gketc&refer=us

[ChairmanAgnostic]

1. duh. it's obvious.

the ones who did not donate enough to the GOP can fold. Those who paid their bribes will be supported.

[SoCalDem]

2. Amaziing how the Fiscal Darwinists change their tunes when their peers get affected

If it's a Mom & Pop store or a stand-alone business, they just "tut-tut", and say..sink or swim..use those bootstraps..but when their moneyed pals stand to lose out, they get quite creative with our taxes