Of piggy banks, a collage, and central bank wizardry

The Fed is a piggy bank. It’s filled with Treasury bills. The banks are piggy banks filled with bad loans.

The banks shake the Fed piggy bank and out come these nice T-bills. “What pretty papers these are, let’s take them home,” the banks say. They’ll dress up the balance sheet nicely. “What do we get,” the Fed says. “Here, take this. It’s a collage,” as the banks stuff the Fed’s piggy bank with a modern art mixture of toxic paper.

“I like modern art,” the Fed says. You can keep the T-bills until 2009. Keep them 3 months at a time. As long as you need them. Here, take some more.

Bernanke at lunch, musing: “Fellows, I have a great idea. We’ll buy those T-bills back from the banks. We’ll just credit their accounts with us. Then we’ll all be happy. Isn’t central banking wonderful?”

Waitress: “Who’s going to pay for the lunch today?”

Bernanke: “Will you take a check?”

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12:17 pm on July 31, 2008