Now that tea bagging has failed what is next for the right wing?

[KrazyHorse]

What black-letter provisions exclude Fed authority to arrange ~$1B worth of similar transactions in a severe liquidity crisis where Congress dangerously drags its feet, should the Fed so choose?

a) I assume you mean 1Tr, not 1B
b) Don't know. I was relying on legal analysis of Fed powers by TV & print commentators.

[Jon Miller]

The bailout stopped, I think, chain collapses of banks. And the loss of a large fraction of the banking system would have been catastrophic.

That might be true.

I think that what good it did for the society, could have been done in other ways which did not reward those who made the poor decisions as much.

JM

[Darius871]

What black-letter provisions exclude Fed authority to arrange ~$1B worth of similar transactions in a severe liquidity crisis where Congress dangerously drags its feet, should the Fed so choose?

a) I assume you mean 1Tr, not 1B
b) Don't know. I was relying on legal analysis of Fed powers by TV & print commentators.

a) Yeah, typo after switching from $85B

b) They're right that the Fed's emergency powers have traditionally been modest, but 1932 & 1991 amendments made them fairly broad with only five real conditions, of which at least three are at the Fed's total discretion, if not all five:

In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by an affirmative vote of not less than five members...may authorize any Federal reserve bank...at rates established in accordance with the provisions of section 357 of this title, to discount for any [entity] notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an [entity] the Federal reserve bank shall obtain evidence that such [entity] is unable to secure adequate credit accommodations from other banking institutions.

12 U.S.C.A. § 343

In the case of September 2008 there were unquestionably 1) "unusual and exigent circumstances" of urgent financial panic (the very reason for the Fed's creation, and cited by Bernanke himself to be interpreted as about "twice in 75 years" rarity) and 5) total "[in]ab[ility]" of affected financial institutions to gain "adequate credit accomodations from other banking institutions" (which Geithner has interpreted to already be implicit in condition #1 to begin with, which makes sense).

Meanwhile, the remaining conditions of 2) supermajority Board vote, 3) discount "rates established" and 4) the Fed's mere "satisfaction" with consideration received (a wording that comes from the 1991 FDICIA amendment's repeal of a very restrictive doctrine previously requiring collateral effectively equivalent to "real bills") are entirely up to the Fed's discretion. The Fed explicitly cited these conditions to justify both the Bear Stearns and AIG deals (presumably among others), so it could have done the same for countless other institutions if it wanted to.

Not only would the Fed be within the letter of its statutory authority by instituting a TARP-like program, but even if that would have been dabbling in a questionable gray area, absent egregious violations the courts with jurisdiction are loath to touch any monetary policy decision with a ten-foot pole:

“It would be an unthinkable burden upon any banking system if its open market sales and discount rates were to be subject to judicial review.

Raichle v. Fed. Reserve Bank of New York, 34 F.2d 910, 915 (2d Cir.1929)

[T]he granting of rescue funds to [Franklin National Bank] by the [Federal Reserve Bank] were exercises of judgment by the public officials concerned and were well within their competence and authority. Absent clear evidence of grossly arbitrary or capricious action on the part of either or both of them...it is not for the courts to say whether or not the actions taken were justified in the public interest, particularly where it vitally concerned the operation and stability of the nation's banking system.

Huntington Towers, Ltd. v. Franklin Nat.'l Bank, 559 F.2d 863, 868 (2d Cir. 1977)

In light of all this I can only conclude that the Fed had ample legal authority to do something like TARP on its own initiative, but simply declined to do so, for obvious reasons: considering the public uproar against even the Congressionally-approved bailouts administered by an executive department, just imagine what it would have been like had an unelected body done the same. It would have been safer for their institution's legitimacy to wait a few weeks for the clueless laymen in Congress to pass a blank check to Treasury, which is exactly what happened.