One way of looking at the Fed’s new Term Auction Facility is that it’s the
discount window without the stigma. But stigma, it seems, is in the eye of the
beholder, and Dean Baker, for one, still seems to think that borrowing
from the TAF is a sign of weakness:
Those of us who think that Wall Street folks might not always be entirely
honest, might suspect some insiders will trade stock based on the fact that
they know certain banks have borrowed heavily through the TAF. This could
allow for substantial profits at the expense of the outsiders who don’t know
about this borrowing.
I don’t think this is realistic: TAF borrowings are likely to be at or very
close to the Fed funds rate, and there’s no stigma at all to participating in
the Fed funds market.
All the same, it might well help if some of the larger, safer, and better-capitalized
banks made their TAF borrowings public at the beginning of this new scheme –
just to help dispel any lingering idea that it’s designed only for banks in
trouble.