the tindog coffeehouse

Back in June, I asked the question, “How much power should the Fed have?”

“At some point,” I concluded, “enough is enough.”

The question came a few months after the Bear Stearns bailout but before the collapse of Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and AIG and before the passage of a $700 billion bailout plan.

On Tuesday, a day after the Federal Reserve announced it would expand its emergency lending program to $900 billion, it declared it would begin buying large amounts of commercial paper to help provide critical short-term loans to businesses.

The move did not go unnoticed by some critics who questioned its legality.

“Almost every day there’s a new program. It’s almost Rooseveltian, if that’s a word,” said David Jones, chief economist at DMJ Advisors in Denver and a longtime Fed watcher. He was referring to bold federal programs undertaken by President Franklin D. Roosevelt in the 1930s to battle the Great Depression.

“Certainly, the Fed is pressing against the bounds of its territory as the central bank.”

But is legality even relevant at this point?

Certainly the consequences of not having that short-term credit available to businesses would be felt immediately as companies struggled to make payroll, stock inventory, and pay their bills.

So should we simply look the other way while Ben Bernanke rewrites the rule book? Even if we don’t, can we even do anything about it? The President could remove him from his position, but that’s not going to happen.

Economies around the world are in free-fall right now, and it’s only going to get worse before it gets better. And with the next presidential election less than a month away, neither John McCain nor Barack Obama has any real concrete plans on how to stop the bleeding.

So maybe the question isn’t how much power should the Fed have, but how much power will it have?

Something tells me we won’t have an answer to that question for quite a while.

Previously:
The root cause of the subprime meltdown
Economic myths and the demise of Lehman, Merrill, AIG