This question is based on a statement that Donald Kohn, Vice-Chairman of the Fed, made today:
“We are not taking significant credit risk that might end up being absorbed by the taxpayer,” Kohn said in a speech at a conference at Vanderbilt University. “For almost all the loans made by the Federal Reserve, we look first to sound borrowers for repayment and then to underlying collateral.”
Oh, I guess we are suppose to take his word for it. Lending to any financial conglomerate particularly one that is a zombie requires "significant credit risk". But Mr. Kohn says they only lend to "sound borrowers". What is the Fed's definition of "sound borrower"? I am not sure that Citigroup or Bank of America can be considered "sound borrowers" but that just speculation on my part. But is congress asking the right questions of the Fed? Again, what is the definition?
Mr. Kohn refers to underlying collateral as to why there is not a "significant credit risk". Who is he kidding? What about "collateral risk"? The Fed claims it monitors collateral on a daily basis but who is monitoring the Fed to make sure this is being done? Who is examining the quality of the collateral that the borrowers offered on trillions of dollars of loans?
Who is truly watching the Fed?
If there is a report on the quality of collateral can someone post a link to it. Thanks.