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Senator Chris Dodd, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, yesterday said he will pressure the Federal Reserve to intervene in student loan markets.
Dodd announced his intention to send letters in the coming days asking Federal Reserve Board Chairman Ben Bernanke to use existing tools to avert a breakdown in the market for student loans...
The Wall Street Journal reports Sen. Dodd wants the Fed to take student loan backed assets as collateral in the Fed's new lending facilities...I imagine he might also want to expand the Fed's balance sheet directly to the struggling lender Sallie Mae.
Both are bad ideas that put taxpayers at risk. Central banks are supposed to be politically independent. But the Fed crossed the rubicon with the Bear Stearns bailout, and now there is no principle that will allow Chairman Bernanke to say no. After all, if the Fed will rescue hedge funds, why not students?
This is no way to run financial markets. Instead of another bailout, how about looking at the reasons why higher education costs continue to grow at double-digit rates?