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Monday, January 28, 2008

"A Helpful Suggestion for the Fed"

Willem Buiter:

A helpful suggestion for the Fed, by Willem Buiter: It is now clear beyond a reasonable doubt that the Fed wants to prevent sudden sharp drops in the stock market. ... I propose that the Fed put its money where its heart is by engaging in outright open market purchases of US stocks and shares.

By intervening through the purchase of the most broadly-based value-weighted index of US stocks, e.g. the Wilshire 5000 Total Market Index, any unlevelling of the playing field between listed stocks can be avoided. I would prefer the Fed to acquire only non-voting shares, or to put any shares it acquires in a blind trust... On January 25 the Wilshire 5000 index stood at 13,423.62. The 52-week peak was on October 7, 2007 at 15,806.69. Let's split the difference and request the Fed to put a floor below the Wilshire 5000 at, say, 14,500.00. ...

What I propose is effectively the same as the Fed attaching a free put option to every equity share in a US-registered and-listed enterprise. It would put paid forever to all those jokes about the Greenspan put and the Bernanke put.

Let's do it!

Barry Ritholtz also has a letter to Ben. My view hasn't changed and is similar to Mark Gertler's. Update: Another view:

Ben Bernanke under fire, Times Online: ...Robert Shiller ... told The Times yesterday that Paul Volcker, the Fed’s chairman during the Carter and Reagan administrations, would have made a better job of spotting the consequences of the housing recession and credit turmoil on the American economy than Mr Bernanke. ...

    Posted by on Monday, January 28, 2008 at 01:00 PM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (33)


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