Fed Govs On Warpath Against Moral Hazard Facility

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If the gentlemen who run the Federal Reserve have been listening to discussions about whether Lehman Brothers will be the next Bear Stearns, they must have noticed that the conversation usually gets around to the idea that Lehman can't fail because the Fed is backstopping Wall Street.
In what appears to be a coordinated attack on that idea, two Federal Reserve poobahs today warned that the alphabet soup of newlending programs the central bank has created in the midst of the credit crisis may be encouraging risky behavior and distorting markets. Federal Reserve Bank of Richmond President Jeffrey Lacker gave a speech in London on this topic. Philadelphia Federal Reserve President Charles Plosser, in a speech he gave today to NYU's Stern business school, said pretty much the same thing. Both speeches were prepared in advance, so this was not some off-the-cuff off message and the joint timing drives home the point.

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