Who is checking the Fed?

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.

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"sound borrower"

means any of their pals and revolving door colleagues.

I saw Volcker said the Fed is going to have to become more transparent, less power, along with Barney Frank...

and I saw that Geithner/Fed are arguing over publication of the "stress" tests because they don't want the public to know who really are the Zombie banks...

but it gets better, some are saying they do not want to make the "stress tests" public because the test themselves are really bogus and incomplete, which will even more incense the public on how they are just handing gobs of money over to their golfing buddies.

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Re: Stress test - we are screwed

No matter which way Treasury goes we, taxpayers, are screwed. Limited release will lead to speculation and rumor -the things Treasury was suppose to prevent. Full release means the truth about zombie banks which is a good thing.

Problem is in either case the "insolvent" banks will be allowed 6 months to get additional private capital. What a joke? The cost of capital will be too high and the zombies will opt for the low cost capital that Treasury will provide - our money.

The stress test have already been discredited. Nothing has been done to address the lack of confidence and trust in the markets. We will continue in lumbering along. I hope I am wrong.

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