Last night, Bloomberg dropped a monster scoop on the Federal Reserve's bailout program, which scored $13 billion in profit for some of the largest and most troubled banks. There are many reasons to be furious at the news that broke last night, but they're not all good reasons.
First, you can be furious that the Federal Reserve "committed" $7.7 trillion -- a sum of money equal to half of the U.S. economy -- to save the financial system. I understand the shock, but we were at the precipice of catastrophe and that many wasn't "spent" so much as it was put at risk and subsequently recouped. The economy has struggled in the three years since, but we avoided meltdown. The trillions worked.
Second, you can be furious that the banks made a profit off of their own mistakes -- but $13 billion is a small price to pay for staving off Armageddon. Third, you can be furious that the Federal Reserve went to court to keep this information out of the hands of journalists. There, I'd agree. It's Congress's job (not the Federal Reserve's job) to pass laws that govern the banking sector, but Congress needs information to make good decisions about regulating banks and it's disappointing that the Federal Reserve withheld details about its bailouts while the commission and the Dodd-Frank debate were ongoing. Fourth, you can be furious that our central bank basically did the right thing when it had to, and its counterpart in Europe won't -- at the risk of a continental meltdown.
That's the fury shared by Felix Salmon in a great post last night comparing the Federal Reserve's extraordinary heroics to save Morgan Stanley in December 2008 to the European Central Bank's less-than-heroic efforts to save Europe in November 2011.
Ladies and Gentlemen, this is what a lender of last resort looks like ... it kept on lending, as much as it could, to any bank which needed the money, because, in a crisis, that's its job.
This is what lenders of last resort do. And this is what the ECB is most emphatically not doing. I find it very hard to imagine the ECB lending some random European investment bank €100 billion just for the sake of keeping liquidity flowing.
Bloomberg's reporters and editors have an awe-inspiring job digging up the Fed's secrets and refining our understanding of the true scope and cost of the bailout. But what the world needs today to fix both the European debt crisis and the American jobs crisis is more lenders of last resort acting like lenders of last resort. The Federal Reserve shouldn't have been embarrassed to share these details and we shouldn't be shocked into revolt against central banks by reading them. On the contrary, we'd be wise to ask for more easy money.