The Fed is making three kinds of bad loans. First, the Fed is lending to banks that are in bad shape and need the funds badly. They are simply bad risks. If the Fed were a profit-maximizing banker, it would not make such loans, throwing good money after bad. The Fed is simply gambling (not wisely speculating) that in time these banks will recover. The gamble is huge; the amounts it is lending are a huge portion of its assets.

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