I agree with Volker, See my 6 February 2008 post on the banks QSPE accounting.
Saturday, May 24, 2008
Volker on the Fed
"Former [Fed] Chairman Paul Volker said the Fed's independence could be hurt by the wide variety of assets it has taken on its balance sheet to combat the credit cruch. ... It has so far not directly purchased [loans backed by subprime mortgages]. It did, however, make an unprecdented loan of $29 billion to facilitate the sale of Bear Stearns Cos. to J.P. Morgan Chase & Co. ... Volker [said] 'If its' going to be looked to as the rescuer or supporter of a particular section of the market, that is not strictly a monetary function in the way it's been interpreted in the past.' ... Volker also laid part of the blame for the current crisis at the feet of banking regulators, including the Fed. 'Why were [the banks] permitted to set up those off-balance-sheet entities that may or may not have had some formal relationship with the bank? They were not regulated and [banks] didn't hold an adequate amount of capital against them. Why did that happen after the experience of Enron?' ... In 2003 and 2004, the Fed and other regulators ruled that the new accounting standards wouldn't compel banks to hold aditional capital for such entities. But when investors refused to refinance the entities' commerical paper last year, some banks were forced to take the entities back on their own balance sheets", WSJ, 15 May 2008.