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Timeline: Fed to the Rescue

Timeline: Fed to the Rescue

By Kristin Jones / ProPublica

Since the financial meltdown began last month, the Federal Reserve has launched a dizzying number of emergency measures to counter it. Most of these steps have been aimed at injecting cash into banks. Hundreds of billions in newly invented loans have been doled out to U.S. commercial and investment banks, and some foreign central banks now qualify for “unlimited” credit from the Fed. On Tuesday, it added another unprecedented program that will buy as much as $540 billion in short-term debt, known as commercial paper, from money market mutual funds.

“The scale and scope is quite different from anything [the Fed has] done in the past,” says Michael Bordo, an economics professor at Rutgers University who is an expert on financial history. The institution is acting within its broad mandate, he added, but in the past it has generally pumped money into the open market rather than targeting specific institutions.

As well as injecting cash, the Fed has undertaken several steps to loosen banking regulations. It has relaxed certain capital requirements as well as rules restricting transactions between banks and their affiliates. Given the current political consensus that deregulation contributed to the crisis, further deregulation may seem counterintuitive. But what it does is treat the symptom of a frozen lending market

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