Well, the Federal Reserve has, under orders from Congress, released a huge mass of data on its extraordinary interventions into the financial sector during the height of the crisis, from 2007-2009. These documents make for interesting reading. In a word, the Fed was throwing money at everything that moved. Never has “lending of last resort” been realized so radically. The variety of institutions partaking of the acronymic cacophony of lending facilities and other devices is something to behold. I was amused to see that Harley-Davidson was a regular participant in a commercial paper lending operation. Motorcycles and shadow banking: an interesting business amalgam. Then there is the sheer size of these loans to the big banks. We’re talking about firms borrowing $15 or $20 billion in overnight loans, every night, for weeks. And foreign banks no less than domestic ones were clinging to the Fed for dear life. The documents leave no doubt that the private banking system was in ruins. Here are several good summaries of the documents.
Relatedly, Martin Wolf of The Financial Times has an excellent column yesterday describing in overview the crisis in Europe. What’s going on is that private obligations are being converted into public obligations: government and finance are merging. This is a historical and global trend, most acutely evident in Europe right now.