Wednesday, February 20, 2013

In a country that promotes a free market why does the Fed have so much power?

        The Federal Reserve is the central banking system of the United States. It's goals are to maximize employment, maintain price stability, and maintain a moderate long-term interest rate. It works by buying or selling various financial institutions. It's designed to be able to help the country when in times of financial stress. In the most recent recession in 2009 the Fed worked to bail out many large companies including Goldman Sachs, Morgan Stanley, Citigroup, Merrill Lynch, and many other large companies. The bailouts included 3.3 trillion in emergency loans and more than 9 trillion in a large amount of short-term loans.

      These extremely high bailouts bring to light several issues behind he semi-private semi-federal entity that the Fed is. Most notably is the high amount of cash that the fed is able to spread with limited amount of accountability. In 2009 President George W. Bush authorized a 700 billion dollar bailout that when compared to the 9 trillion eventually given and loaned out to bail out the “too big to fail” institutions. The implications of the money being given to bail to these institutions isn't good. It allows banks to employ high risk high reward strategies with the knowledge that if they do fail that the government has their backs. In economy supposedly based on free markets how is this allowed to happen?

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