The Fed should let more banks fail and provide liquidity later.
The cause of the liquidity crisis is that banks are skeptical about being repaid by other banks, and some borrowers.
Some banks remain bad credit risks because their assets cannot be adequately valued.
It’s unclear who the riskiest borrowers are.
Lowering the Fed funds rate looks good now, but it may be like pushing on a string.
If every borrower can come to the Fed window regardless of credit quality, the U.S. may be rewarding moral hazard.
The new president should push through new bank capital standards, sending the message to banks that this is the price for liquidity.
Otherwise, FDIC payments to depositors of failed institutions might be cheaper than expanded Fed Open Market operations.
What does this mean for the biofuels industry?
Take a lot of bankers to lunch. You never know where they will end up, or when you might need them. – David Givens
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