The Real News Network has PT2 The Fed and the Crisis. If you have not looked at part 1 yet, you will find it in my previous post The Fed and the Crisis.

There is a plethora of good information in the above video, but I shoose to pull out this one section for emphasis. It explains a little appreciated, but important part of the Dodd-Frank bill.

So what other macroprudential possibilities are there? Actually, there is one in Dodd–Frank, which will come into effect at the end of July 2012, and that is section 610, which goes back and corrects an enormous error made by a controller of the currency at the end of the Clinton administration, who acceded to the request of the banks to remove their requirement in the sense that loans to a single borrower had to be a given percentage of capital, if that affected financial institutions. In other words, the commonsense notion of don’t put your eggs all in one basket, which had been part of the National Bank Act since 1865, was to be waived if that basket was another financial or group of financial institutions. What section 610 does is say, no, the law requires you to break it all up, to distribute your lending across the spectrum in relation to capital.

Moreover, it does something else extremely important. It recognizes, unlike the Federal Reserve, that the financial sector has changed. It now doesn’t speak of banks lending; it speaks in the statute of credit exposures. And the credit exposures include repurchase agreements, reverse repurchase agreements, derivatives, securities lending, etc.—in other words, all those exciting things that brought us into crisis.

The Real News Network has the article The Fed and the Crisis. This is “a commentary by Jane D’Arista assessing the actions of the Federal Reserve in managing the economic crisis.”

I want to particularly emphasize the following quote even though the commentary is filled with other good information, too.

The configuration which we face now, all the other institutions—mutual funds, investment banks, asset issuers, insurance companies—contribute three times as much credit to the system as does the Federal Reserve—or, excuse me, as does the banking system.

I have been trying to make this point in the blog from its inception, but this is the first time I have heard an expert provide quantitative figures. The factor of three is probably even larger than I have been assuming. Remember the factor of three is not a comparison between the private sector and the Federal Reserve Bank. It is a comparison between the enumerated parts of the private sector — mutual funds, investment banks, asset issuers, insurance companies — and the banking system. The Federal Reserve bank is only part of the banking system. The private sector banks create a lot of the credit that is created by the banking system.

So the next time you hear some politician or some business news medium railing against the Federal Reserve “printing” money, just remember that the private sector “prints” money at more than three times the rate of the Federal Reserve Bank. In other words, less than one third of the credit being created is being created by the Federal Reserve Bank.