Fed, Treasury Fall Back on Existing 'Inadequate' Tools

With no federal deal, agencies limited to ad hoc solutions
By Clay Dillow,  Newser Staff
Posted Sep 30, 2008 11:42 AM CDT
Treasury Secretary Henry Paulson, left, accompanied by Federal Reserve Chairman Ben Bernanke, testifies on Capitol Hill in Washington, Wednesday, Sept. 24, 2008.   (AP Photo/Manuel Balce Ceneta)
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(Newser) – With yesterday’s failure of the $700 billion bailout, the Fed and Treasury are reconsidering their options, the New York Times reports. Fearful of cutting interest rates, they're back to rescuing struggling institutions on a case by case basis, and printing money—offering $150 billion in emergency loans to banks and $330 billion to foreign central banks yesterday.

“The problem is that these are just a series of ad hoc solutions on a business-by-business basis, and they aren’t addressing the systemic problems in any basic way,” one economist says. With bailout uncertain, the agencies have no choice but to draw from a toolkit Treasury Secretary Henry Paulson called “substantial but insufficient.” Treasury yields sank to a meager 0.29% yesterday, and interbank lending rates soared, underscoring banks’ fear of lending.