In response to a request from Sen. Judd Gregg, the CBO has issued a study on cost to taxpayers of Federal Reserve’s actions during the financial crisis ($21 billion). Near the end of a blog post on the study, CBO director Doug Elmendorf offers the following caveat:

It bears emphasizing that CBO’s fair-value estimates address the costs but not the benefits of the Federal Reserve’s actions. In CBO’s judgment, if the Federal Reserve had not strategically provided credit and enhanced liquidity, the financial crisis probably would have been deeper and more protracted and the damage to the rest of the economy more severe. Measuring the benefits of the Federal Reserve’s interventions in avoiding those worse outcomes is much more difficult than estimating the subsidy costs of the interventions, and CBO has not attempted to do so. It is likely, though, that the benefits of the Federal Reserve’s actions to stabilize the financial system exceeded the relatively small costs of the fair-value subsidies.

Herewith, a couple of quick (by no means authoritative) notes on why I think this kind of statement is premature:

1. We do not yet know to what extent the Fed’s actions benefited the economy, because this crisis is still playing itself out. The Fed’s response to the crisis required a ton of money-creation, and we don’t know how that’s going to end. I am slightly comforted by the fact that Greg Mankiw thinks the Fed will be able to control the beast it’s unleashed, but Mankiw also notes that doing so will require hard political choices that it’s not clear the Fed is prepared to make. Are the “benefits” to which Elmendorf refers merely costs delayed? It’s just too soon to tell.

2. We do not yet know how much the Fed’s actions cost taxpayers, because they created a level of moral hazard that will almost guarantee future bailouts. As we’ve noted around here, the financial-regulation bill on its way to passage does very little to restrict the Fed’s ability to engineer these kinds of bailouts in the future. The Fed would still be allowed to flood the financial system with liquidity, accepting very shady assets as collateral, bailing out solvent and insolvent firms alike, and bank creditors are going to take that into account. AEI’s Peter Wallison has just issued a new report along these lines calling the Fed-engineered bailout of Bear Stearns the “original sin” of the federal government’s response to the crisis. As with most of what Wallison writes, it’s well worth your time.