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As Count Floyd might have said, "Scary!"
Here is the report, from the Financial Times of London:
Geithner stresses Fed role in dollar stance
By Aline van Duyn and Michael Mackenzie in New York
Published: June 9 2008 23:20 | Last updated: June 9 2008 23:20
Timothy Geithner, president of the New York Federal Reserve, has appeared to dismiss the market perception that the US Treasury calls the shots for the dollar, saying responsibility is a “delicate balance” between the Treasury and the Fed.
Referring to his time as a Treasury official, he said the balance of responsibility for the dollar was “60:40”, with the Treasury taking the lead but the central bank clearly playing an important role.
The dollar strengthened on Monday after Mr Geithner said the Fed was paying “very close attention” to its value. “No government or central bank can be indifferent to changes in the value of its currency,” he said in a question-and-answer session at the Economic Club of New York.
Hank Paulson, US Treasury secretary, also told CNBC on Monday that he would not rule out intervention to stabilise the dollar. The currency rallied after setting a six-week low on Monday and was up 1 per cent at $1.5622 against the euro in late trade.
Last week Ben Bernanke, Federal Reserve chairman, broke a taboo on Fed officials commenting on the dollar when he drew links between a weaker currency and higher import costs and consumer price inflation.
The Fed has cut benchmark overnight interest rates sharply to 2 per cent since September. Now markets expect a rate increase later this year to address inflationary pressures.
Mr Geithner has been a key US policymaker throughout the financial crisis and one of the main architects of the rescue of Bear Stearns. The bank was bought by JPMorgan, which Mr Geithner said was the only way to avoid a default.
“Our first and most immediate priority remains to help the economy and the financial system get through this crisis,” he said. After the system had stabilised, the regulatory system had to have an overhaul.
“The severity and complexity of this crisis makes a compelling case for a comprehensive reassessment of how to use regulation to strike an appropriate balance between efficiency and stability,” he said.
The establishment of a central clearing house for credit derivatives was an important goal of a meeting held on Monday afternoon at the New York Fed with 17 big firms, Mr Geithner said.
Changes in the derivative market’s infrastructure, expected over the next six months, “will help improve the system’s ability to manage the consequences of failure by a major institution”, he said.
The dealers and Fed will outline a number of changes in the way over-the-counter derivatives trades are processed, including a central clearing house, reduced outstanding contracts, and greater automation of trading and settlement.
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