Great Recession: Separating Fact from Fiction on the Fed's Loans

It sounds like a great story: The Federal Reserve lent the banks $7.7 trillion during the financial crisis. And Congress wasn't told.

But it isn't true. Even if Jon Stewart says otherwise.

The Fed and the taxpayers did bail out the banks, including some that occasionally pretend otherwise today. The Fed lent enormous sums: $1.6 trillion in emergency loans and individual bailouts at the December 2008 peak. The Fed has been too secretive in the past. The Fed deserves some blame for not preventing the crisis. The Fed executed some aggressive plays during the crisis that demand post-game scrutiny.

But lending against collateral to solvent, but cash-short, banks during a panic isn't among the Fed's more controversial moves. That's what central banks have done since 19th-century England. And the Fed didn't lend anywhere near $7.7 trillion. Nor did it keep the size of its lending secret, though it did unsuccessfully try to keep the borrowers' identities secret.

For more, see Separating Fact from Fiction on the Fed's Loans by David Wessel, December 7, 2011 at WSJ.com.