Dollars and Jens
Tuesday, March 04, 2008
TAF and counterparty risk
Everyone else — I've just seen it for the third time — seems to be linking to this Q&A about exposure to counterparty risk to which the Fed might supposedly be exposing itself via the term auction facility's acceptance of less-than-stellar collateral, so I'll follow the herd, excerpting only the conclusion:
Q: So you’re saying there’s nothing to worry about?

A: There’s plenty to worry about, including the collapse of the housing market, early signs of decay in commercial real estate, soaring commodity prices, an over-leveraged consumer, losses and potential capital impairment at financial institutions and an economy that’s flat-lining. That’s enough to keep you up at night without tossing and turning over the Fed’s exposure to credit risk.

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