The special Federal Reserve borrowing facility for Wall Street securities firms is only temporary, a top Treasury official said Wednesday. Robert Steel, US Treasury undersecretary for domestic finance, stressed the word “temporary” in his remarks on the facility to the Wall Street Journal’s dealmaking conference on Wednesday.
The new discount window that allows securities firms to borrow from the Federal Reserve, a privilege reserved for depository commercial banks in normal times, was opened amidst the collapse of Bear Stearns. It has somewhat calmed fears that another large Wall Street firm could collapse in the fashion of Bear Stearns, but lately Fed officials seem to have been indicating that the window poses serious “moral hazard” threats.
Much of the discussion on Wall Street and in the media has centered around the likely regulation that would accompany any continuation of the window beyond September. Indeed, much of the coverage of Steel’s remarks concentrated on this issue. But this seems to overlook the very real possibility that the window will be shut permanently.
When asked if the window would remain open beyond its schedule September expiration, Mr Steel said, “I stressed the word temporary.” The interviewer then pointed out that the word temporary was not used in Merrill Lynch CEO John Thain’s discussion of the window earlier in the conference. Steel reiterated: “Notice I used it twice.”
With government officials stressing the dangers of the window and its temporary nature, it’s a wonder that Wall Street continues to widely believe that the window is permanent. The mainstream financial media is also stuck in this story line. Not one wire story or newspaper report on Steel’s remarks even used the word “temporary.” How many times does Steel have to say “temporary” before the message gets through?

Comments (7)

  1. Posted by sorenmacbeth | June 13, 2008 at 1:16 PM
  2. Posted by guest | June 13, 2008 at 1:20 PM

    Moral hazard.

  3. Posted by guest | June 13, 2008 at 1:21 PM

    let’s not bring prostitution into this 1:20

  4. Posted by guest | June 13, 2008 at 1:37 PM

    I wish they’d temporarily lend me a few billion to trade with too

  5. Posted by guest | June 13, 2008 at 1:43 PM

    They probably would if you can become a primary dealer

  6. Posted by guest | June 13, 2008 at 1:55 PM

    They’re betting that the fed won’t do something that could cause the market to tank just two months before the election.

  7. Posted by guest | June 13, 2008 at 2:56 PM

    Everything is temporary. Things may be called temporary or permanent but if my ass is on the line that means shit. He has to be more specific. And anyway he does not call the shots.
    Yours,
    Steve Schwarzman.