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A Fed Bailout Is Wrong for States and Cities

The Federal Reserve recently announced a huge expansion of well-designed lending facilities for companies and local governments. But its Municipal Liquidity Facility will purchase up to $500 billion in short-term notes from the largest cities and all states—even if they have been mismanaging their finances for years. To minimize the program’s risk, the Fed should buy these short-term notes at discounts based on the issuer’s financial condition and should resist the urge to buy long-term bonds from local governments.

To fund…

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