The back-and-forth between Bloomberg News and the Federal Reserve about the Fed’s emergency lending program is interesting to read. But I think it winds up obscuring most of the big important questions posed by the Fed’s actions during the height of the financial crisis. What’s happening in the dispute, basically, is that the Fed did a bunch of emergency Lender of Last Resort stuff and wanted to keep all the details quiet. Bloomberg did years worth of yeoman work suing and filing FOIAs to get the Fed to cough up the data and assemble a big spreadsheet of what happened. Having done the legwork, they naturally presented their findings in a somewhat sensationalistic and overblown manner, so the Fed has room to push back. At the same time, the Fed’s effort to make us think that nothing special happened here is absurd – it was an acute financial crisis! Crazy stuff was happening!
But it’s still the case that the real issue here isn’t what the Fed did, but what the Fed didn’t do. The point of all this flurry of activity was to save the American economy. And if you’d asked Ben Bernanke at the time what failure to save the American economy would look like, I think he might have said “a multi-year period of mass unemployment.” But we got a multi-year period of mass unemployment anyway. That’s a huge failure of epic scope that neither Bernanke nor anyone else in a relevant position of authority has taken any responsibility for. The Fed has never claimed to be “out of ammunition” which is good because they’ve never been out of ammunition. What they did instead was choose to stop shooting once it was clear that the major banks were okay and unemployment was going to level off. Then when a new crisis arose in Europe over the past month, they started shooting again. But once again, the money hose is aimed directly at the banking system rather than households and there’s no determination to actually take a big bite out of unemployment. What Bloomberg is teaching us here is that there’s lots and lots of stuff that a creative and determined central bank can and will do to resolve problems that it takes seriously. Unfortunately for us, 8.6% unemployment doesn’t seem to be on the list of problems that they take seriously.