Always a pleasure to read the words of the great @GeorgeSelgin, but George, you have misquoted the statute. 13(3)(B)(i) is very different from what you quote. /1 https://twitter.com/GeorgeSelgin/status/1249733644278804480

The post-Dodd-Frank 13(3) requires the Fed to pass policies and procedures re: these new powers. And then, in relevant part: "Such policies and procedures shall be designed to ensure ... that the security for emergency loans is sufficient to protect taxpayers from losses." /2

You say this means that "the Fed must see to it 'that the security for emergency loans is sufficient to protect taxpayers from losses" and that this restriction means that "the Fed isn't supposed to lose money." /3

There's a big difference between your gloss on the statute and what the statute actually says. Congress is asking the Fed to create underwriting procedures for emergency lending such that the security for loans is sufficient. /4

This is very similar to what banks do. They want to create programs that ensure that their secured lending succeed. That means that some loans will necessarily be underwater, because that's how bank portfolio risk is managed. /5

Where we agree--and I thought our very fruitful debates of last week already ended--is that the "taxpayer losses" are about remittances (the only mechanism in a deflationary world where such losses are realized) and on balance sheet risk, rather than loan risk. /6

Your thoughts w/ Kate Stith on constitutional law are great but orthogonal to the present debate. You're talking first principles here, and there the already blurry line between what the law forbids (our debate) and what policy should be (something else) is mostly lost /7

Your dismissal of the "lever up" argument is great. I agree with it completely. Indeed, for clarity, my views are only these three. If they have changed from what we debated earlier, it's because you or Kate or Dan have convinced me: /8

1. The Fed can legally engage in emergency lending without Treasury "equity" so long as its 13(3) procedures are designed to protect taxpayers from a baseline losses on remittances. This puts emergency lending and monetary policy in dialogue, as they must be. /9

2. There are genuine political risks to the Fed picking up emergency lending facilities with so much bilateral counterparty exposure, whether in munis or small biz or backstopping the clumsy SBA. Treasury "equity" might help absorb some of that political risk, BUT /10

3. I agree w/ @sam_a_bell. Congress wants the Fed to be its primary representative in lending, not Treasury. I will have tens of thousands of words to say about Fed independence post Covid, but for now I just want the Fed, Treasury, and Congress to succeed at this vital task /end