I would like to explore these questions next in terms of two issues: the appropriate use of the federal safety net and the implications for monetary policy under a broadening mandate.
Safety net issues and moral hazard concerns The public policy actions directed toward Bear Stearns, primary dealers, and Fannie Mae and Freddie Mac have resulted in a significant expansion of the safety net and the Federal Reserve’s lending practices. Now that more financial activities have gravitated outside of the banking system, more financial stability concerns seem destined to arise.