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Bill Poole: A Fed 'Put' Exists

btw - second point, wasn't the bailout for LTCM completely funded by the banks themseves? The Fed played the role of facilitator. Woe to the world to have a facilitator help devise settlements between a mass consortium of banks to ensure an orderly drawdown of an entity with massive worldwide exposures. In fact, I can't think of a better role for the Fed to play in such a situation.

Bill Poole: A Fed 'Put' Exists

I'm not sure I caught you quite right there... LTCM survived intact w/o any consequences to their actions!? Are you really arguing that? So it really was so horrible that a bailout was devised in order to handle an orderly drawdown of their assets so that the enormous amounts of counterparty risk could be handled in a contained way? I cordially suggest that history would show that major criticism of how LTCM was handled is extremely misguided. Let's look at the final results of the '98 crisis. Not a damn thing macroeconomically happened and LTCM is gone. The problem in the 30s was the Fed stood by with a smirk on their face as banks failed and people lost or took out all of their money from the system. Sounds like great fun, let's try it again!!

Is the Market Misreading the Fed?

And he'd (Bernanke) be right, thus you will be too.