Here’s another Kudlow suggestion which is being implemented. The Fed in the usual Thursday repo actions took mortgage bonds as collateral. Larry called for that two weeks ago and Larry Lindsay and Robert Shiller and even Bob McTeer turned their noses up at the idea. A week ago the Fed did it - they accepted mortgages as collateral. What a difference two weeks makes.
This action increases confidence in the securities that lie at the foundation of our credit system at the same time that they increase banking system liquidity. The crisis is not over yet, but we’re moving in the right direction. First lender of last resort (discount window), next liquidity (open market operations pushing the fed funds rate below official target rate), now changing collateral requirements to shore up confidence in a sound security which has been beaten down by panic.
We’re getting there. I’ll outline a bit later where we need to go from here.
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