Briefly, there are two reasons why I don’t see the language George cites as relevant to whether the Fed must legally accept Treasury investment. /1 https://twitter.com/GeorgeSelgin/status/1246129523051180033">https://twitter.com/GeorgeSel...

First, the only mechanism to realize “taxpayer losses” is through the annual remittance. The Fed can manage it’s truly gargantuan balance sheet to protect the remittance even if it takes loan-level losses through 13(3) facilities. /2

Second, appropriated funds given to Treasury are taxpayer funds more obviously than the Fed’s budget through seigniorage. If the statutory provision George cites means what he says, then the Fed would be *forbidden* from accepting it to absorb losses. But that can’t be right. /3

Instead, I see this is a Bagehotian underwriting exhortation. Take good care in a crisis, when lending “to this man and that man” that there are due precautions taken. The statute operationalizes this as “assigning a lendable value” to the collateral. /4

It’s not a requirement that emergency lending never take losses unless there’s Treasury participation in these facilities, which is my point in this piece. /5

For the historical argument, I’ll write a full blog post! /end