The emergency lending facilities deployed by the Federal Reserve at the start of the pandemic threaten to set a dangerous precedent that will put pressure on the central bank to fund all its projects. government – including the “colonization of Mars” officials have warned.
Who is Randy Quarles? step down as Fed governor this month, struck a cautious tone about the unprecedented support provided as the coronavirus crisis began by the US central bank, the central bank has taken operates a series of programs to ensure the smooth flow of credit to households, businesses and local governments.
Quarles said the pandemic facilities have “set the precedent that the Fed can let businesses and cities govern,” which will encourage those with big plans and little patience for the pandemic. Democracy requires more action in the future.
“There will certainly be those. . . people will start asking why the Fed can’t fund the repair of the country’s aging infrastructure, or fund the construction of the border wall, or purchase trillions of dollars in energy bonds green, or warrant the colonization of Mars,” said Quarles, a Donald Trump appointee who served as one of Wall Street’s top watchdogs before his term expired in October.
In addition to cutting interest rates to zero and announcing a massive bond-buying program, the Fed has deployed 13 facilities under its authority that allow it to buy assets under “extraordinary and urgent circumstances” with the backing of the Federal Reserve. US Department of the Treasury to cover any losses.
Usage of the programs is generally low, with the Fed’s mere promise of action to reassure investors.
But Quarles said the central bank is willing to delve into risky markets like corporate junk bonds and municipal debt.[breached] unbreakable permanent firewall of direct lending to non-financial businesses”. If misused, he added, it could do “major” damage to the organization’s mission at an event organized by the American Enterprise Institute, a right-wing think tank.
Quarles reiterated his support for the Fed’s response to the coronavirus, but warned that an institution unfettered from “congressional appropriation” would have “the greatest political and regulatory consequences”. Political control over it would be a great prize.”
That would represent “dangerous financial irresponsibility, and the pressures of participants would turn [the Fed] from a technocratic, non-political regime. . . into the most politically entangled organization in the country,” he added.
Should the Fed be forced to provide these types of facilities in the future, Quarles called on the central bank and Congress to turn “without delay” all matters related to governance and funding into one “means of non-Fed” responsible for administering and ultimately withdrawing support.
In its statement on Thursday, Quarles also suggested possible improvements to the rules and regulations that guide the largest financial institutions, including changes to the way banks inspect stress and adjust leverage requirements that dictate the amount of capital a lender must hold.
He also urged policymakers to show “reasonable restraint” in regulating digital assets like stablecoins.
Quarles has come under considerable criticism during his tenure for what progressive Democrats see as a dilution of the post-global financial crisis regulatory apparatus.
The Biden administration is now under pressure to fill the vacancy with someone much more staunch on Wall Street. Sarah Bloom Raskin, who previously served as a Fed governor and held senior positions at the Treasury Department, is said to be under consideration, as is Richard Cordray, a former director of the Consumer Financial Protection Bureau and a ally of Democratic Senator Elizabeth Warren.