Fed, Treasury Fall Back on Existing 'Inadequate' Tools

With no federal deal, agencies limited to ad hoc solutions
By Clay Dillow,  Newser Staff
Posted Sep 30, 2008 11:42 AM CDT
Fed, Treasury Fall Back on Existing 'Inadequate' Tools
Treasury Secretary Henry Paulson, left, accompanied by Federal Reserve Chairman Ben Bernanke, testifies on Capitol Hill in Washington, Wednesday, Sept. 24, 2008.   (AP Photo/Manuel Balce Ceneta)

With yesterday’s failure of the $700 billion bailout, the Fed and Treasury are reconsidering their options, the New York Times reports. Fearful of cutting interest rates, they're back to rescuing struggling institutions on a case by case basis, and printing money—offering $150 billion in emergency loans to banks and $330 billion to foreign central banks yesterday.

“The problem is that these are just a series of ad hoc solutions on a business-by-business basis, and they aren’t addressing the systemic problems in any basic way,” one economist says. With bailout uncertain, the agencies have no choice but to draw from a toolkit Treasury Secretary Henry Paulson called “substantial but insufficient.” Treasury yields sank to a meager 0.29% yesterday, and interbank lending rates soared, underscoring banks’ fear of lending.
(More Ben Bernanke stories.)

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