{"id":1091,"date":"2007-08-22T21:54:12","date_gmt":"2007-08-23T01:54:12","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1091"},"modified":"2007-08-22T21:54:12","modified_gmt":"2007-08-23T01:54:12","slug":"the-discount-window-good-or-bad","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1091","title":{"rendered":"The Discount Window: Good or Bad?"},"content":{"rendered":"<p>The <a href=\"http:\/\/blogs.wsj.com\/economics\/2007\/08\/22\/commentary-history-suggests-no-long-term-fix-from-discount-window\/\">WSJ blog<\/a> noted some arguments regarding the Fed&#8217;s discount window, which the Fed has encouraged the big banks to use, with some obviously orchestrated success.<\/p>\n<p>A <a href=\"http:\/\/research.stlouisfed.org\/publications\/review\/92\/09\/Misuse_Sep_Oct1992.pdf\">very interesting article by Anna J. Schwartz<\/a> addresses historical misuse of the discount window\u00a0to prop up insolvent institutions rather than simply provide emergency liquidity. She argues that the discount window should be eliminated &#8230; for all my <em>laissez-faire<\/em> ideals, I find that a little hard to swallow. Her argument rests on the footnoted phrase:<\/p>\n<blockquote><p>Credit-worthy banks can borrow at market rates, large ones in the Fed Funds market, small ones from their correspondent banks.<\/p><\/blockquote>\n<p>That sounds to me like an overgeneralization. When fear takes over, I am more inclined to agree with Larry Neal and his diagnosis of informational asymmettry exemplified, he says, in the <a href=\"http:\/\/www.prefblog.com\/?p=1082\">Panic of 1825<\/a>. Few lenders even have the desire to determine creditworthiness &#8211; especially if they have potential obligations that they may have to meet &#8211; and those few that do may set the &#8220;creditworthy&#8221; bar uneconomically high.<\/p>\n<p>I agree with her whole-heartedly, however, when she decries the extended provision of credit to an insolvent institution.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The WSJ blog noted some arguments regarding the Fed&#8217;s discount window, which the Fed has encouraged the big banks to use, with some obviously orchestrated success. A very interesting article by Anna J. Schwartz addresses &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-1091","post","type-post","status-publish","format-standard","hentry","category-interesting-external-papers"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1091","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1091"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1091\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1091"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1091"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1091"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}