Wall Street may have rallied on the back of the $15bn agreement struck in principle to save the automakers, but the details are, of course, still being finalised in Congress. Just in case policymakers are inclined to have any second thoughts, however, Ben Bernanke has, interestingly, rushed out with this little statement, making the Fed’s position crystal clear:
WASHINGTON, Dec 9 (Reuters) - The U.S. Federal Reserve would be reluctant to lend to auto makers, particularly if Congress had decided against such action, Fed Chairman Ben Bernanke told lawmakers in a letter made public on Tuesday. “The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act,” Bernanke said in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat.
More detail from Bloomberg:
“Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said. “In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.”
The letter, a copy of which was forwarded by the Senate banking panel, represents Bernanke’s first public comments on whether the Fed would extend credit to the beleaguered car industry.
We guess that translates as “Congress, you better approve that loan as it won’t be the Fed’s problem”.
The latest, according to Reuters, is that the White House and Democrats in Congress are still working on the details but ‘edging’ closer to a deal. Hopefully, Bernanke’s comments are just the push they need to sort it today.
Related link:
Lex on auto bankruptcy options - FT Alphaville
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