Sunday, November 22, 2009

Fed's Bullard Backs Extension of MBS Purchases

by Calculated Risk on 11/22/2009 07:26:00 PM

From the WSJ Real Time Economics: Fed’s Bullard: Asset Buying Efforts Should Remain Active (ht (Bob_in_MA)

“I have advocated to keep the asset purchase program open but at a very low level, and wait and see what happens, and as information comes in about the economy we can adjust that program while the federal funds rate remains at zero,” [Federal Reserve Bank of St. Louis President James] Bullard told Dow Jones Newswires in an interview Sunday ahead of a conference in New York. He added “no decision has been made” about the program’s fate.
...
Citing the current level of the Fed’s overnight interest rate target, Bullard said “as long as we are at zero (percent) we’d be able to send signals to the markets about what we are thinking about the economy, and how much accommodation the economy needs at various points, by adjusting the asset purchases.”
Bullard will be a voting member of the FOMC next year.

Here are the slides from Bullard's speech today. Here are a few excerpts:
KEY PROBLEM: TOO BIG TO FAIL

  • The crisis showed that large financial institutions worldwide were “too big to fail.” (TBTF)
  • Really, “too big to fail quickly.”
  • If we let large financial firms fail suddenly, global panic ensues.
  • Again, these firms are not necessarily banks.
  • Reform efforts must focus on getting this intolerable situation under control.
  • TBTF is very costly to the macroeconomy as well as unfair.
  • We need laser-like focus on this problem.

    ACTUAL PROPOSALS

  • Proposals addressing TBTF:
  • Systemic risk regulation: A council with the Fed having implementation responsibility.
  • A resolution regime for large financial firms.
  • Split up large firms.
  • There are important global coordination issues.
  • Difficulties in design suggests a “go slow” approach.
  • The crisis will not soon be forgotten.