FED’s Poole Lashes out at GSEs
At the never-ending subprime panel in New York City, St. Louis FED President Bill Poole:
* Aruged market expectations that the FED will provide financial stability will affect behavior, but not in a hazardous way
* Says FOMC policy has done a good job of protecting the financial system without protecting any one firm
* Quotes Greenspan, saying “no firm is too big to fail, but some may be too big to liquidate quickly”
* Notes there could be a situation where intervention is inevitable, but he would enact high standards for such a situation and only act if disturbance posed a “clear and present danger”
* Says he’s more skeptical of the financial strength of the GSEs
* Affirms the FED can deal with liquidity pressures but not solvency issues
* Thinks GSEs are the top potentially serious problem, and that this problem resides the “structure” of GSEs
* Says best policy in a crisis is to bring about stability first and then reverse course if inflation arises
* Admits that while financial firms cannot expect targeted aid, GSEs can