This guest post is from the Economic Policy Institute's Nancy Cleeland.

Much has been said about the Federal Reserve’s exploding balance sheet, which jumped from about $800 billion to more than $2 trillion in the wake of the Lehman Bros. collapse as the Fed pumped money into credit markets to prevent further failures. Less appreciated is the amount of risk suddenly taken on by the central bank, which has a long history of holding only Treasury securities, gold and other super-safe assets. Using calculations contained in a working paper by IMF economist Peter Stella, we at the Economic Policy Institute charted the growth of risk in the balance sheet, as shown below.

This risk-taking is an indication and an outcome of the Federal Reserve’s expanded role as credit market intermediary, and is among reasons many are calling for greater transparency from the notoriously secretive central bank.

This morning starting at 9:30, an EPI forum will examine the implications of the Fed’s balance sheet and the prospects for reform. Opening the event will be Sen. Bernie Sanders of Vermont, a longtime advocate for greater transparency and sponsor of S604, the Federal Reserve Sunshine Act of 2009. A panel discussion follows with Jon Faust, director of the Center for Financial Economics at Johns Hopkins University and a high-level Fed economist for nearly two decades; George Goehl, executive director of National People’s Action, a grassroots organization that convinced Fed Chairman Ben Bernanke to hold a series of field hearings across the country this summer; Dean Baker, co-director of the Center for Economic and Policy Research, who has written extensively about the housing bubble and the Federal Reserve’s failure to take action to prevent it; and William Greider, veteran journalist and author whose 1987 book on the Federal Reserve, “Secrets of the Temple,” is still in print and more relevant than ever.

The Federal Reserve forum is the second in a series of monthly discussions on the financial crisis organized by EPI’s Bailout Analysis Project. Further information and videos of past events can be found at www.epi.org and www.bailoutwatch.net.

--Nancy Cleeland is a former reporter with the Los Angeles Times and the director of the Bailout Analysis Project at the Economic Policy Institute, based in the District.

By Terri Rupar  |  July 15, 2009; 9:07 AM ET
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