When the Fed Goes Bust, Ron Paul for Executor

These days, America’s federally compliant, too-big-to-fail financial institutions are hard at work on their living wills. The next time disaster strikes, the authors of the Dodd-Frank reform legislation stipulate, banking behemoths must have plans at the ready to dissolve themselves, rather than have the taxpayers pay to wind them up. The Federal Deposit Insurance Corp. was pushing for such an approach to crisis management even before the 848 pages of HR 4173 landed on the nation’s coffee table this summer with such a startling thud. Don’t worry, Sheila Bair has told the bankers whose deposits her agency insures: It won’t take more than 500 hours to throw together an acceptable submission.

But we have been thinking: If the likes of Bank of America, J.P. Morgan and Citigroup have to draw up end-of-days contingency plans, what about the central bank that lit the fuse on the bomb that nearly blew up the economy? Surely, it should have to make preparations for its own dissolution, too. Following is a short-form living will for the Federal Reserve. We submit it pro bono.

Actually, it may hearten Chairwoman Bair to know that it takes nothing like 500 hours to draft a suitable plan. Colleague Evan Lorenz was on the job for no more than 90 minutes, and he seems to have hit the highlights, starting with the identity of the Fed’s executor (it’s the Republican congressman from Texas).

Why would the Fed ever have to go out of business? Highly leveraged financial institutions forever wobble on the cusp of disaster, and the Federal Reserve Bank of New York, the largest of the Fed’s 12 satellite banks, is leveraged 71:1. Maybe its management will zig when it ought to zag, and financial problems will overwhelm the parent.

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