Lender and Buyer of Last Resort

After the 2008-2009 Financial Crisis, it became fairly obvious that the FRB would be engaged in a more meaningful manner when another crisis would occur. Any doubt has been removed when we look at what happened at the outset of the 2020 Pandemic crisis. It is a fine distinction, albeit somewhat controversial at this point, that the economic distress that has been experienced since March 2020 has been the result of government policy and not the virus itself. In other words, had the various productive institutions of society – that is, those bearing the direct costs of policy decisions – been allowed to drive the health mitigation efforts perhaps the course taken would have been different. At this point, that counterfactual is purely an academic exercise. The present circumstances are what they are. That said, what this present crisis has brought to bear is the reality that the level of support to the markets by the FRB has been unprecedented, although not at all unforeseen. Below is a Table that highlights the various lending facilities initiated by the FRB, the markets impacted, and their amounts outstanding: close to $90 billion of support remains outstanding. If history is any guide, and the Japanese experience comes to mind, the market interventions in a future crisis by the FRB will continue to be more obvious and we will ultimately reach a point when it will effectively become the buyer of last resort for everything.

Source: Periodic Report: Update on Outstanding Lending Facilities