Many commentators view TAF as an odd, desperate attempt by the Fed to do something, or to seem to do something, in a desperate situation. That is not my view. I think the Fed is acting quite deliberately here, that it is working out of a playbook that the Chairman developed and described years ago. I am optimistic that the Fed's approach, if pursued tenaciously, can succeed in undoing the widespread perception of risk and instability in the banking system.

Of course, "optimistic" is not quite the right word here, because I oppose the whole enterprise. All the talk about moral hazard and burning houses misses the point. The financial sector has underwritten gargantuan misallocations of real resources in the United States, and profited handsomely from doing so.

We agree... the TAF seems rather deliberate, and has the intent of providing a backstop value to mortgage securities values (to "bail out" the banks and other financial entities exposed to them). However, we worry just as much about what it means for the TAF to be successful as for it to "fail" (as in, fail to resurrect trading in these securities and fixed income in general). If successful, will the banking sector have just been made dependent on another government system -- in effect, put on welfare, in much the way the Fannie/Freddie/FHA/FHLB mortgage origination sector is now?

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