Saturday, July 19, 2008
America's 21st-century financial victims make no protest against the Federal Reserve's policy of showering dollars on the people who would seem to need them least. It wasn't the nation's small savers who brought down Bear Stearns, or tried to fob off subprime mortgages as "triple-A." Yet it's the savers who took a pay cut. To facilitate the rescue of that system, the Fed has sacrificed the quality of its own balance sheet. In June 2007, Treasury securities constituted 92% of the Fed's earning assets. Nowadays, they amount to just 54%. In their place are loans to the nation's banks and brokerage firms, the very institutions whose share prices have been in a tailspin. A currency draws its strength from the balance sheet of the central bank that issues it.