hi orda,
didn't they create money to buy those instruments?
if they write them down, then that isn't a cash transaction, is it?
it's a loss.
but will that affect the market's view of the full faith and credit of the united states?
doubt it.
i think everyone knows the fed overpaid. that was deliberate. they swallowed the toxic pill because no one else could. and the consequence of not doing so was catastrophe.
so basically the cost of the excess payment for the instruments was ultimately borne by the us currency as expressed in the fx markets. but since we live in frightening, deflationary times, the dollar remains a desirable asset.
which means, relative to the alternatives available at the time and ugly though it was, the policy worked.
the commercial banks survived. hurray. boo. hurray. boo. okay, both. but for god's sake stop them repeating the errors that caused the problem.
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