Ten Questions Tim Geithner’s Stress Test Should Answer About His Tenure at the Federal Reserve
Ten Questions Tim Geithner’s Stress Test Should Answer About His Tenure at the Federal Reserve:
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Why in 2007 did the Federal Reserve Bank of New York not understand that the risk associated with “originate to distribute” mortgage-backed securities and their associated derivatives had not left the financial sector?
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Why in 2007 did the Federal Reserve Bank of New York not understand that the risk associated with mortgages ha not been distributed but rather concentrated into the highly-leveraged too-big-to-fail banks?
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Why in 2007 did the Federal Reserve and the Treasury not use their regulatory powers to force the too-big-to-fail banks to substantially raise equity?
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Why at the start of 2008 did the Federal Reserve not do what Greenspan did in 1997–not shift preserving short-run price stability to a lower priority than maintaining financial stability?
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Why did the Federal Reserve effectively lower its target rate for nominal GDP growth at the start of 2008?
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Why in the spring of 2008 did the Federal Reserve not require all the peers and near-peers of Bear Stearns to substantially increase their equity?
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Why in the spring of 2008 did the Federal Reserve not develop a plan for how it would “resolve” the situation if additional too-big-to-fail entities (cough, Lehman) became the object of a bank run?
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Why, if the Federal Reserve did not believe it had the legal authority to properly “resolve” Lehman in the fall because it was then not just illiquid but insolvent, did the Federal Reserve not “resolve” the top-big-to-fail Lehman situation in the summer, when Lehman crossed the line from being solvent-and-liquid to insolvent-but-still-liquid?
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How, if the Federal Reserve did not have the power to “resolve” the insolvent Lehman on Sunday, did it acquire to power to “resolve” the insolvent AIG on Tuesday?
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Why did the Federal Reserve effectively, again, lower its target rate for nominal GDP growth in the fall of 2008?