Tuesday, April 08, 2008

Volcker: Fed ‘at Edge of Its Lawful and Implied Power’

clipped from blogs.wsj.com

Former Federal Reserve Chairman Paul Volcker roundly criticized the central bank’s extraordinary response to the financial crisis that’s been gripping markets since late last summer in a speech Tuesday.

“The Federal Reserve judged it necessary to take actions that extended to the very edge of its lawful and implied power, transcending certain long embedded central banking principles and practices,” Volcker said, according to a copy of his speech. Actions taken by the Fed “will surely be interpreted as an implied promise of similar action in times of future turmoil.”

“What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time honored central bank mantra in time of crisis - ‘lend freely at high rates against good collateral’ to the point of no return,” Volcker said.

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