The Federal Reserve protects the financial system by being ready to lend money to financial institutions that are stressed in a crisis. It’s already in motion, setting up “facilities” to protect money market funds and other investments.
But in this unprecedented emergency, we need a government agency that can provide the same financial lifeline to our core non-financial systems–healthcare, communications, power, food production and distribution, waste removal, key manufacturing. This agency should be able to quickly provide a short-term loan to any hospital, power company, phone company, food manufacturer that is about to fail. Then after the emergency is over, the short-term loan can either be paid back, or turned into a long-term income-contingent loan.
Each of these systems interlock with the others. A failing power system will quickly take down health and food production. A lack of food will undermine the communications system. Keeping the core systems of the economy going is essential.
Many of the companies involved are large and have plenty of financial reserves. They probably will not need help or even additional supervision. But a surprising number of businesses involved in core systems are medium size or small, including hospitals, small telecom providers, and all the companies involved in the food supply chain. They are going to run into financial trouble and need to be supported.
Setting up a new agency is not something that I necessarily want to do. But having a Core Systems Board with the responsibility of backstopping key networks–especially the smaller companies–is essential.
I’m interested in hearing thoughts and comments.