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>Had last Wednesday's meeting ended with the participants telling the
>head of the New York Federal Reserve, William McDonough to take a hike,
>what would Greenspan have done? There is no legal precident which I am
>aware of that the Fed could have used to force the players involved to
>cough up the required $3.5B.
The Fed does have substantial indirect power with which they can basically
make banks do what they want. For instance, Greenspan can call up a client
bank and say "we've decided that your outstanding loan portfolio is above
average in risk, so we've decided to raise the amount you're required to
keep on reserve with the Fed. We'll expect a wire transfer for $2 billion
in the morning." This isn't just my imagination. The use of this power is
so commonplace, economists gave it a name. It's called "moral suasion."
Bruce
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