When did the US treasury lose the ability to purchase securities? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Some historical distinctions are in order.
Congress established the RFC at the end of Hoover's admin. It's function was cash credit facility to the private sector because the FRB had no lending authority. Congress required public disclosure of borrowers. The program was considered a failure at FYE because management of banks and industrials feared disclosure (panic, stigma, misallocation) so did not exercise the facility although rates were um subprime.
Within FDR's first 100 days, Congress amended the Emergency Banking Act to permit the RFC to purchase also corporate securities directly (open, closed market) in addition to issuing RFC bonds to the public. Treasury also initially financed the RFC in treasuries seed capital. FDR appointed Jesse Jones RFC board chairman during the same period. Jones's authority in equities selections and tenure at RFC and Commerce through to WWII was a contentious topic over the period. (for example, 25 Jan 1937)
Today of course a few observers have noted that the purchase of FNM, FRE, AIG "equity" by Treasury agents serves the same purposes as that of the RFC... while explicitly endorsing Jones's "shareholder" prerogatives. The legal and arcane authorities exercised by the FRB and Treasury have been cited extensively in numerous public reports and www FAQs, especially "Blueprint for a Modernized Financial Regulatory Structure," a prospectus.
Others are still enthralled by free market principles or confused by the RTC function which was receivership. Diversity is the key to economic and political evolution.
Gov't rushing to finish huge financial rescue plan
Earlier, Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.
Setting aside confirmation of a "Depression-era fund" ...
Treasury announced Wednesday evening it would purchase AIG securities. The White House PR claim today somewhat contradicts the unique stature of that Agreement: "all of the assets of AIG and its Material Subsidiaries" are pledged collateral and, separately, warrant for purchase of 79.9% common shares of AIG by the FRB. Diversity is the key to economic and political evolution.
