Asset Management for the Federal Reserve
June 7, 2020
Idea: Create an Asset Management Division within the New York Federal Reserve Branch to Expand the Federal Reserve's Ability to Directly Support: Credit Markets, Housing Liquidity, Corporate Bonds, and Corporate Assets During Economic Downturns
Problem: The Federal Reserve was created by the Federal Reserve Act in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve Act was designed to address the problems of the financial system in 1913. Since 1913, technology and finance have evolved in ways not envisioned. In response to our current global Covid-19 pandemic and corresponding economic downturn, the Federal Reserve has expanded it's Open Market Operations beyond buying and selling US treasury bonds. The Federal Reserve has interviewed directly to support the credit markets by buying newly issued corporate bonds, existing investment grade bonds, and exchange traded funds (ETFs) that are based on highly rated debt. Lacking the effective ability to quickly buy and manage these new purchases, the Federal Reserve has contacted the work to the asset management firm, BlackRock. BlackRock will oversee three debt buying efforts. Putting such an important aspect of the Federal Reserve in the hands of one since private firm is dangerous and should be by the Federal Reserve itself during the next crises
Description: An Asset Management Division of the Federal Reserve Bank of New York should be created to facilitate and management the purchases that the Federal Reserve makes to support the credit markets, which involve purchasing: newly issued corporate bonds, existing investment grade bonds, and exchange traded funds (ETFs). These asset types are becoming increasingly important to stabilize the financial system and our real economy. Purchasing and managing new asset types that are beyond the Federal Reserves typical operations is and will be important in combating future economic downturns.
Additionally, the Federal Reserve should contract BlackRock to build an Aladdin system for the entire financial system, so the Federal Reserve can monitor the financial system . This will be a truly monumental undertaking and be very difficult to accomplish, but the reward for success could very well be avoiding an economic depression. It would be an incredibly valuable tool