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Fed Up: An Insider's Take on Why the Federal Reserve is Bad for America Kindle Edition
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After correctly predicting the housing crash of 2008 and quitting her high-ranking Wall Street job, Danielle DiMartino Booth was surprised to find herself recruited as an analyst at the Federal Reserve Bank of Dallas, one of the regional centers of our complicated and widely misunderstood Federal Reserve System. She was shocked to discover just how much tunnel vision, arrogance, liberal dogma, and abuse of power drove the core policies of the Fed.
DiMartino Booth found a cabal of unelected academics who made decisions without the slightest understanding of the real world, just a slavish devotion to their theoretical models. Over the next nine years, she and her boss, Richard Fisher, tried to speak up about the dangers of Fed policies such as quantitative easing and deeply depressed interest rates. But as she puts it, “In a world rendered unsafe by banks that were too big to fail, we came to understand that the Fed was simply too big to fight.”
Now DiMartino Booth explains what really happened to our economy after the fateful date of December 8, 2008, when the Federal Open Market Committee approved a grand and unprecedented experiment: lowering interest rates to zero and flooding America with easy money. As she feared, millions of individuals, small businesses, and major corporations made rational choices that didn’t line up with the Fed’s “wealth effect” models. The result: eight years and counting of a sluggish “recovery” that barely feels like a recovery at all.
While easy money has kept Wall Street and the wealthy afloat and thriving, Main Street isn’t doing so well. Nearly half of men eighteen to thirty-four live with their parents, the highest level since the end of the Great Depression. Incomes are barely increasing for anyone not in the top ten percent of earners. And for those approaching or already in retirement, extremely low interest rates have caused their savings to stagnate. Millions have been left vulnerable and afraid.
Perhaps worst of all, when the next financial crisis arrives, the Fed will have no tools left for managing the panic that ensues. And then what?
DiMartino Booth pulls no punches in this exposé of the officials who run the Fed and the toxic culture they created. She blends her firsthand experiences with what she’s learned from dozens of high-powered market players, reams of financial data, and Fed documents such as transcripts of FOMC meetings.
Whether you’ve been suspicious of the Fed for decades or barely know anything about it, as DiMartino Booth writes, “Every American must understand this extraordinarily powerful institution and how it affects his or her everyday life, and fight back.”
- LanguageEnglish
- PublisherPortfolio
- Publication dateFebruary 14, 2017
- File size1409 KB
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Editorial Reviews
Review
—A. GARY SHILLING, president of A. Gary Shilling & Co., Inc.
“Danielle DiMartino Booth has written an informed, thoughtful, eye-opening—and justifiably angry—memoir of her days at the Federal Reserve. A monetary broadside for our populist world.”
—JAMES GRANT, publisher of Grant’s Interest Rate Observer
“An outsider-turned-insider gives a gripping account of how false, but stubbornly held beliefs at the Fed helped create the global economic crisis as well as contribute to rising inequality in the United States. Brutally honest and engagingly written . . . A mustread.”
—WILLIAM R. WHITE, former economic adviser and head of the monetary and economic department at the Bank for International Settlements
“Penned with bold prose and laced with compelling arguments, Booth delineates the exact reasons that the Fed has failed America and why America should abandon the Fed. Fed Up is a must-read tale of the over-reaching power, unfettered egos and clueless bravado that struck at the core of American stability, and must do so no longer.”
—NOMI PRINS, author of All the Presidents’ Bankers
“The road to hell is paved with good intentions. [Booth] personalizes and clearly explains the influence, the danger, and the consequences of monetary activism gone wild.”
—PETER BOOCKVAR, chief market analyst at The Lindsey Group
“This book is a must read for every American who wants to stay informed and educated about our financial future.”
—ALLEN WEST, member of the 112th US Congress
“If you want to read a strong counterpoint—from the perspective of a lonely non-Keynesian within the Fed—to the ‘we saved the world’ narratives of those who led us to zero yields, asset bubbles, and a fast-shrinking middle class, this is it.“
—ROB ARNOTT, chairman of Research Affiliates
“Danielle DiMartino Booth proves that insightful technical analysis and hilarious anecdotes can exist between the covers of the same book.”
—JAMES RICKARDS, author of The Road to Ruin
“Booth’s insider status, captivating personality, mellifluous writing style, and keen sense of observation are wrapped up into a thoughtful analysis of our country’s dependency on the Fed and the worrisome consequences of that addiction.”
—DOUGLAS A. KASS, founder and president of Seabreeze Partners Management Inc.
“DiMartino Booth combines a lively writing style with careful research, quotes and annotations. Her first-hand account, which juxtaposes the complacency inside the Fed with the unfolding crisis outside, should appeal to a wide range of readers, from critics of the Fed and market participants to the average person eager to learn how monetary policy is conceived and executed.”
–CAROLINE BAUM, MarketWatch
About the Author
Excerpt. © Reprinted by permission. All rights reserved.
"Groupstink"
Never in the field of monetary policy was so much gained by so few at the expense of so many.
-Michael Hartnett, Bank of America Merrill Lynch chief investment strategist, November 1, 2015
Early morning, December 16, 2008, with a drizzle of freezing rain falling, few would even glance at the line of inconspicuous Mercury Marquis sedans pulling up to Washington, DC's Fairmont Hotel. Emerging from the luxurious four-star establishment, their Foggy Bottom home eight times a year, are eleven little-known bureaucrats with their contingent of requisite subordinates.
There is no fanfare to mark the coming momentous decision they are to take on as they comfortably settle in for the ten-minute caravan to the neoclassical white marble edifice known as the Marriner S. Eccles Federal Reserve Board Building, located at Twentieth Street and Constitution Avenue NW.
Another half dozen of their peers had already left their homes in nearby Georgetown or some other Washington suburb and they too are making their way to the same address for the all-important 9 a.m. meeting.
Only one of these bureaucrats-the chairman, a mild-mannered former professor-might have been recognized in an American airport. The rest-unelected, immune to political pressure, mostly academics, and save one, inexperienced in the intricacies of running a major corporation, or even a small business-were virtually invisible outside the narrow world they inhabited despite the enormous power they wielded.
As these seventeen people arrived, they stowed their coats and umbrellas, grabbed a cup of coffee or tea, and mingled, the low hum of their conversation perhaps more subdued than on similar occasions. The day before, the first of the two-day affair, had been extraordinary in both the dire picture it painted of the American economy and the realization that they would have to take bold and unprecedented action.
That next sleety morning, they met again, determined to take action to prop up a faltering Wall Street, hopelessly mired in the greatest financial crisis since the Great Depression. Even as they convened, the wreckage of the previous three months still burned around them. Credit markets had seized up and fears for the fate of the economy were mounting.
With a few exceptions, virtually all of those at the meeting were PhD economists who had earned doctorates at MIT, Yale, Harvard, Princeton, and other top American universities. They met under the auspices of the Federal Open Market Committee (FOMC), the decision-making body of the Federal Reserve System. They believed a lifetime of study in economic theory and monetary policy had given them unique insight to steer policy for the most powerful central bank in the world, the lender of last resort for failing Wall Street banks, and the U.S. government's last line of defense against utter financial chaos.
Created in 1913 after the Panic of 1907, the Federal Reserve was founded to keep the public's faith in the buying power of the U.S. dollar. After failing miserably in the 1930s, the Fed aimed to be more responsive. This led the institution to find discipline in the rising macroeconomic models championed by top monetary theorists. During the ensuing "Quiet Period" in American banking, deposit insurance prevented panics, the Fed controlled interest rates and manipulated the money supply, and though occasional disruptions flared, like the failure of Continental Illinois National Bank and Trust Company in 1984, no systemic risk erupted for seventy years. The Fed had tamed the volatile U.S. economy.
Until September 2008, when all hell broke loose in a worldwide panic that completely blindsided and, embarrassed the Federal Reserve. The Fed had used billions of dollars in taxpayer funds to bail out Wall Street fat cats. Everyone blamed the Fed.
Just before 9 a.m., the door to the chairman's office opened. Federal Reserve Chairman Ben Bernanke took his place in an armchair at the center of a massive oval table. The members of the FOMC found their designated places around the table; aides sat in chairs or couches against the wall. With staff, the room contained fifty or sixty people, far more than normal for this momentous occasion.
In front of each FOMC member was a microphone to record their words for posterity. To a casual observer, the content of their conversation would be obscured by economic jargon.
This day, their essential task was to vote on whether to take the "fed funds" rate-the interest rate at which banks lent money to each other in the overnight market-to the zero bound. The history-making low rate would ripple throughout the economy, affecting the price to borrow for businesses and consumers alike.
Bernanke was calm but insistent. His lifetime of study of the Great Depression indicated this was the only way. His sheer depth of knowledge about the Fed's mishandling of that tragic period was undoubtedly intimidating.
By the end of the meeting, the vote was unanimous. The FOMC officially adopted a zero-interest-rate policy in the hopes that companies teetering on the brink of insolvency would keep the lights on, keep employees on their payrolls, and keep consumers spending. It would even pay banks interest on deposits.
Free cash. We'll even pay you to take it!
As they gathered their belongings, everyone shook hands, all very collegial despite the sometimes vigorous discussion. They journeyed back to their nice homes in the toniest neighborhoods of America's richest cities: New York, Boston, Philadelphia, Chicago, Dallas, San Francisco, Washington, DC.
They returned to their lofty perches, some at the Eccles Building, others to the executive floors of Federal Reserve District Bank buildings, safely cushioned from the decision they had just made. Most of them were wealthy or had hefty defined benefit pensions. Their investments were socked away in blind trusts. They would feel no pain in their ivory towers.
It took a few months, but the Fed's mouth-to-mouth resuscitation brought gasping investment banks and hedge funds and giant corporations back to life. Wall Street rejoiced.
But the Fed's academic models never addressed one basic question: What happens to everyone else?
In the decade following that fateful day, everyday Americans began to suffer the aftereffects of the Fed's decision. By 2016, the interest rate still sat at the zero bound and the Fed's balance sheet had ballooned to $4.5 trillion, thanks to the Fed's "quantitative easing" (QE), the label given its continuing purchases of Treasuries and mortgage-backed securities.
To what end? All around are signs of an economy frozen in motion thanks to the Fed's bizarre manipulations of monetary policy, all intended to keep the economy afloat.
The direct damage inflicted on our citizenry begins with our youngest minds and scales up to every living generation in our country's midst.
The journey could begin anywhere, but let's start in Erie, Pennsylvania, an area of the country that was struggling even before 2008. The Fed's high interest rates in the 1980s killed its steel and auto industries. The zero bound has dealt the region another devastarting blow. Now, in an Erie elementary school students are given stapled copies of "Everyday Mathematics" instead of an actual textbook. After a snowstorm, twenty-one buckets were deployed to catch leaks because there was no money to repair the roof. In the last five years, the Erie school district has laid off one fifth of its employees and closed three schools to cut costs. School officials are being forced to divert budgets earmarked for kids and facilities to cover the shortfall in its teacher pension fund, starved for yield in a zero-interest-rate environment where bonds return only 1 to 2 percent.
This is not limited to Erie. By mid-2016, long-term returns for U.S. public pensions have dropped to the lowest levels ever recorded-a $1.25 trillion funding gap-forcing pension fund managers from New York to California to resort to ever-riskier investments to meet their legal obligations-and to cut services to make up the shortfall.
Ruining Americans' pension systems? The professor and the FOMC had not anticipated that particular side effect.
And then there are the millennials, the 77 million young people born between 1980 and 1995. As private equity surged into real estate, purchasing homes to be used as rentals in search of higher yields, house prices have soared and the market share of first-time home buyers has dropped to its lowest level in almost thirty years. Nearly half of males and 36 percent of females age eighteen to thirty-four live with their parents, the highest level since the 1940s.
Delaying household formation and all the consumer spending that goes with that? Not on the FOMC's radar.
Even with mortgage rates at record lows, stagnant wages have made it difficult for millennials to amass down payments. Builders anxious to maximize returns now focus on constructing expensive houses, leaving fewer starter homes for sale in urban areas favored by today's young adults. It is an ominous trend for baby boomers. For many, home equity makes up the bulk of their retirement savings.
Killing the move-up housing market? Nope, the FOMC didn't foresee that either.
Chances are pretty good that most boomers didn't get the gist of the statement released by the Fed on that December day in 2008. A certificate of deposit (CD) now pays a hair above nothing. Those boomers-my mom among them-have taken a long hard look at their retirement accounts and realized with a sense of dread that a lifetime of scrimping and risk-averse investing has left their nest eggs vulnerable to serious erosion.
With interest rates on CDs near zero, the average boomer household would need $10.6 million in principal to safely earn $15,930 in interest, the annual income at the federal poverty-line level for a family of two.
Do your folks have $10 million in savings? Mine don't.
Of course, with $10 million, CDs might not be on the table, but that's the point. Several hundred thousand dollars won't do the trick without undue risk for aging boomers.
The members of the FOMC knew their decision would screw savers and the risk-averse elderly. They didn't care. They couldn't afford to. Even when well-intentioned smart people save the world, there are always a few, or in this case, millions of inevitable casualties. C'est la vie!
Sadly, there were no angry protests, no million-man marches on Washington that sent shock waves through our country after the FOMC issued its press release. Only the quiet, unheralded loss of some fundamental freedoms: the freedom to save for our retirements risk free, the freedom to sleep in peace knowing our pensions are safe, and the freedom for U.S. companies to invest in our nation's future.
The FOMC's vote during its final meeting of 2008 didn't come from nowhere. It was part of a long tradition of economic interference by well-meaning bureaucrats, going back to the 1930s and accelerating with Federal Reserve Chairman Alan Greenspan in the 1980s.
Greenspan championed the era of financial deregulation that drove Wall Street to levels of greed that surprised even the most hardened investment banking veterans.
His pragmatic response to every crisis on Wall Street? Lower interest rates, which Greenspan did again and again and again. Blow bubbles and pray they don't pop.
But they always do.
In the late 1990s, dot-com companies soared far beyond true valuations; reality pricked that balloon in 2001.
In response, Greenspan again aggressively lowered interest rates and blew another bubble, this time in housing, with catastrophic results that led to the worldwide meltdown in 2008.
In response, his successor, Ben Bernanke, followed suit, pushing through a massive monetary policy experiment by lowering interest rates to zero and using QE to flood America with easy money.
He based his policies on a lifetime of academic study. His theoretical models relied on the idea of the "wealth effect," first articulated by British economist John Maynard Keynes. The concept assumed that free money would induce businesses to borrow, invest, and hire more employees. They in turn would buy homes, consume, and put savings into the stock market instead of CDs, where they would earn little to no interest. As their assets rose in value, people would spend more.
The resulting wealth-effect tide would lift all boats. Hailed as a genius by other academics, Bernanke had every confidence his theories would work.
When they didn't, when the American economy continued to stagger, Bernanke doubled down. His models couldn't be wrong; something else must be holding back the economy.
Janet Yellen, who followed Bernanke as Fed chair, maintained his radical policies with gusto, determined that households and businesses would invest, buy, consume, damn it! Though many on the FOMC sought an exit plan, Yellen was even more married to the Keynesian model of economic growth than Bernanke. She continued to advocate for more QE, and has even raised the specter of negative interest rates.
But real people haven't responded the way academics anticipated in their wealth-effect models. Individuals, small businesses, and corporations alike have been flummoxed by Fed policy and made their own rational choices unforeseen by the FOMC.
Cheap money, combined with uncertainty about the regulatory and tax landscape, has encouraged corporations to buy back their shares rather than invest in their future. Companies in the S&P 500 Index-the benchmark for America's top five hundred publically listed companies-dispersed more than $600 billion to buy back their stock in 2014, and more than $500 billion in 2015.
This strategy has been employed by companies as diverse as Apple, Bank of America, and ExxonMobil, which lost its prized AAA credit rating after one hundred years, based partially on the record amount of debt it incurred to buy back shares. Since 2005, U.S. corporations have disbursed an estimated $296,000 on share buybacks for every single new employee who has been hired.
Because that's the way the world works.
"No wonder share buybacks and corporate investment into research and development have moved inversely in recent years," wrote Rana Foroohar in an op-ed in the Financial Times on May 15, 2016. "It is easier for chief executives with a shelf life of three years to try to please investors by jacking up short-term share prices than to invest in things that will grow a company over the long haul."
Compared to the immediate post-World War II period, some American corporations now earn about five times more revenue from purely financial activities such as trading, hedging, tax optimization, and selling financial services, as compared to their core businesses.
As a result, the labor market has atrophied. Though lots of so-called eat, drink, and get sick jobs-for waiters, bartenders, and health care workers-have been created, Fed policy effectively pulled the plug on long-term investment and compromised high-paying job growth.
By mid-2015, only 62.6 percent of adult workers were employed or actively looking for a job, the lowest in nearly four decades. The so-called shadow unemployment rate is estimated to be as high as 23 percent. Many of these people will never come back into the workforce.
Product details
- ASIN : B01IOHQ9H8
- Publisher : Portfolio (February 14, 2017)
- Publication date : February 14, 2017
- Language : English
- File size : 1409 KB
- Text-to-Speech : Enabled
- Screen Reader : Supported
- Enhanced typesetting : Enabled
- X-Ray : Enabled
- Word Wise : Enabled
- Sticky notes : On Kindle Scribe
- Print length : 331 pages
- Best Sellers Rank: #333,831 in Kindle Store (See Top 100 in Kindle Store)
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About the author
Danielle DiMartino Booth makes bold predictions based on meticulous research and her years of experience in central banking and on Wall Street. Known for sounding an early warning about the housing bubble in the 2000s, Danielle offers a unique perspective to audiences seeking expertise in the financial markets, the economy, and the intersection of central banking and politics.
Called "The Dallas Fed's Resident Soothsayer" by D Magazine, Danielle is a well-known speaker who can tailor her message to a myriad of audiences, once spending a week crossing the ocean to present to groups as diverse as the Portfolio Management Institute in Newport Beach, the Global Interdependence Center in London and the Four States Forestry Association in Texarkana. Her success is based on her ability to translate the arcane language of Wall Street thinkers and Fed insiders to the man on the street. Danielle is regularly featured on CNBC and Bloomberg.
From Wall Street to respected columnist to Fed Advisor, Danielle spent nine years as a Senior Financial Analyst with the Federal Reserve of Dallas and served as an Advisor on monetary policy to Dallas Federal Reserve President Richard W. Fisher until his retirement. Fisher called on Danielle to serve at the Fed after becoming a loyal reader of her financial column in the Dallas Morning News. She began her career in New York at Credit Suisse and Donaldson, Lufkin & Jenrette where she worked in the fixed income, public equity and private equity markets. Danielle earned her BBA as a College of Business Scholar at the University of Texas at San Antonio. She holds an MBA in Finance and International Business from the University of Texas at Austin and an MS in Journalism from Columbia University.
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The good news is that this book, at least for the first half, is well written and well informed. There is a tone to it, almost a Michael Lewis tone, that makes it fun to read. The bad news is that it will appeal to an audience that is already well informed about the details. This book needs to be written and needs to be read. Unfortunately, it will probably appeal to those least in need of the message. I for one, however, am glad Danielle has written this book, and hope, by some miracle, that the circulation expands beyond the group that would be characterized as "preaching to the choir"
To Danielle, well done so far. Thank you for placing the historical facts into a distinctly well written, concise narrative. The Fed deserves more scrutiny and I look forward to finishing the book and reading your next one.
Danielle DiMartino Booth lifts the curtain a little bit and gives us a first hand account of life in the Federal Reserve. Most books about finance are very technical, but Danielle does an amazing job of distilling the topics into everyday speak. I only found myself re-reading one or two paragraphs in the entire book!
I’d highly recommend Fed Up for anyone who is an investor or a student of personal finance. Many people think that during the next crash that central banks and governments will come to the rescue. Honestly? If you seriously believe that the government is going to act in the best interests of the average consumer, you are a little bit too optimistic.
Fed Up reveals why this thought is a little too optimistic, and gives an amazing view into inner workings of the mystic Federal Reserve.
Some people have said that the book is a little bit too over the top in some places with criticism of economists, but I found it to be reasonable. Also, since it is a financial markets book, the terminology was something I'm familiar with, but many others may not be as comfortable reading.
This is a book of stories and contrasts. On the one hand is the academic bureaucracy of the Federal Reserve system, where someone without a PhD is treated with pity but no one thinks to seasonally adjust data. The view presented of academic economists is not pretty, but also not surprising. Since I make jokes about the Wall Street guys over-relying on the current price rather than intrinsic value, and DDB seems impressed by Warren Buffett, it would be useful to have a companion or follow-up book try to pick the best of each group and design a valuation system for regulators that was better than the current one driven by groupthink. This could be a first step along that path. If not, savers (pensions, insurers, retirees) will crash and burn. Central banks have manipulated rates down to create liquidity, but banks won’t issue loans and the velocity of money continues to hit new lows. Systemic risk is high. Contrarian viewpoints are needed and in short supply. Bankers are unable (and unwilling) to self-regulate successfully. Culture drives results.
Last year I wrote a research report on systemic risk. Regulatory capture is a big problem in finance, especially with banks and the turnstile between them and the Fed/Treasury. This makes regulators less likely to probe banks, looking instead at peripheral groups like private equity firms and hedge funds. Regulators need to add contrarian opinions to their process, bringing in experts from other fields. When I hear that a bank like JP Morgan has 5,000 people in their risk management area, and then they miss the London Whale, it makes me wonder what they are all doing. Risk is driven by culture, and if certain groups are allowed to do whatever they want with no questions asked it will not end well.
DDB describes the San Francisco bank, led by Janet Yellen (who left Harvard after not receiving tenure), as the Keynesian Fed, and the St. Louis Fed as where monetarists rule. As an aside, the St. Louis Fed has the best data sets for financial topics anywhere. Other banks classified were New York as the Wall Street Fed and Dallas as the free market Fed. I wonder if that will survive Richard Fisher’s term in Dallas. It is important to have each of these groups represented, but where has any effort been expended to get them to interact? It seems like each bank’s own board would be a good source of alternative thoughts, but that does not appear to happen either.
The room is full of people to blame for the financial crisis of 2008, and this book is consistent with my prior understanding. While Dodd-Frank is often presented as the savior, Barney Frank was a big part of the problem too (especially in letting Fannie and Freddie run amok). The Bush administration (and Clinton before that) had both blame and at times tried to lower the risks from growing. While politicians were meeting with lobbyists, Zoltan Pozsar wrote The Rise and Fall of the Shadow Banking System, calling out the overleveraged and under-regulated shadow banking system and eventually (surprisingly) getting a job offer from the NY Fed. Using the rules-based Basel I Accord and regulatory arbitrage, credit risk transfer instruments were able to net risk while ignoring liquidity, leverage, and moral hazard. This is where instruments like credit default swaps and overnight loans were created. Today firms use alternative asset classes to reach for yield, and I believe the risks are not well understood by the buyers. A new word introduced in this book for me is rehypothecated, where collateral is used more than once. It’s likely a key in the next crisis. I’ll be looking to learn more about it in the meantime. Regulation keeps the last problem from reoccurring but often directs the market to create the next problem.
A hundred years from now there will be books that may be able to determine the incentives of all the players, including AIG and Treasury. Certainly the biggest banks ended up bigger and with larger moats.
While his earlier paper was predictive, in 2010 Pozsar wrote a paper detailing the interconnections between various financial subsidiaries. The lack of transparency was addressed in Dodd-Frank through the Office of Financial Research. This group does some really good work and I fear it will be torn apart in a wave of deregulation.
A story I had not heard before was about the origin of the Jackson Hole annual conference. Each August since 1982 economists, bankers, and other noteworthy attendees discuss the current state of the economy. The location was chosen to entice Fed Chairman Paul Volcker to attend, as he enjoyed fly fishing. It worked! Raghuram Rajan, currently at Chicago Booth but previously Governor of the Reserve Bank of India and chief economist at the IMF, in 2005 presented a controversial paper at the conference (Greenspan’s last) expressing concern about tail risk driven by a transformation of banking that made the world riskier. He expressed concern about compensation and products like credit default swaps (CDS) that allowed banks to double down on certain risks that were not transparent. No one would know where the exposures were. While he was correct, the reception to his paper was anything but cordial.
I write and tweet about Berkshire Hathaway more than any other company, so it was interesting to hear her comment about investment bankers who sell investments that would fail every fiduciary test if it was applied to them. She notes that their bonuses are often invested in municipal bonds and BRK stock. Does this show a correlation with Buffett’s disdain for most investment bankers?
I don’t have a good reason for including this quote, but I really like it. It’s from an Arctic weather station. “Theory is when you understand everything, but nothing works. Practice is when everything works, but nobody understands why. At this station, theory and practice are united, so nothing works, and nobody understands why.”
DDB does make some recommendations for the Fed system, from realigning office locations to reflect today’s economy to my favorite, allowing a mix of backgrounds to work in the research department of the Fed branches. If you want alternative thoughts to appear, everyone can’t be Ivy League trained and from the east coast.
A couple of years ago I suggested a research project where regional offices would contribute to a federal Chief Risk Officer for the US. DDB notes that various states had success post crisis but that the Fed did nothing to spread good ideas to other regions. I worry that we have not cleared the system and that the next time will be worse since debt has reached new highs at a time when demographic trends are working against OECD growth. Politicians will blame the Fed, but the responsibility is theirs. Abdication does not absolve you from responsibility. Being a person who allows someone to abdicate does not make the Fed any better. There is a balance needed between regulation and markets, and I see no signs of them working together in a reasonable way. A generation where credit risk was free has not helped. Creative destruction only works if those responsible lose their jobs and their wealth. Otherwise financiers reap the rewards and the public pays the price.
I wish Mrs. Dimartino Booth well as she enters the group of pundits who appear for sound bites on CNBC and are well compensated for newsletters. Hopefully she will continue to share proactive solutions and not always talk Republican talking points as she seems to be doing so far. If so, she will be worth listening to.
Top reviews from other countries
In the wake of one of the biggest credit bubble in history bursting, the economic recovery since 2008 has been weakest on record. What do the policy makers expect as the household sector de-levers itself?! This is exactly what happened in Japan after their late 1980's mega credit bubble. Their misguided monetary interventions have done nothing except elevate asset valuations to nose-bleed levels, ready to collapse at some point.
The unusual monetary intervention that should have occurred is not the QE that has tried to reflate this soufflé, but much more rapid tightening during the 2002-2007 period. John Taylor (of the Taylor rule for Fed Funds), has lambasted the Greenspan/Bernake Fed for allowing a credit bubble to get out of control on their watch. Yet Bernake in 2012 commissioned the Fed to do a study of what they could of done differently to prevent the 2007/8 Financial crisis. Their answer? Nothing!! Apparently excessively easy money during the period was down to Chinese capital flows. I call that dissembling. Others would just call it lies. Remember Time Magazine declared Bernanke person of the year! This is a man who apparently was the best person to have as chair of the Fed during the crisis because he was an "expert" on the 1930s Great Depression. Yet no-where in his thesis was there an explanation for the role of the 1920s credit bubble that laid the seed for the 1929 inflation of stock market valuations and economic bubble and the subsequent crash.
And so it was in the run-up to the 2007/8 Finacial Crisis and so it is now, with the current money printer in chief, Janet Yellen totally ignorant that she and her loose money policies have created another massive credit bubble (this time in the corporate sector and recently highlighted by the IMF), which will cause another economic collapse just like 2007/8. She didn't see the last crisis coming and she can't see this one coming.After the next economic collapse is again laid at the Fed's door, I do not expect they will retain their independence, nor should they.
Yellen, Bernanke and Greensoan and their idealogical supporters are, in my opinion, economic zealots who have seized controls of the levers of monetary power and cannot be ousted.
Please buy and read this excellent, well written book. You will then understand Danielle's and like minded economists utter disbelief and frustration at what has happened. You will also get a taster of the next crisis that is surely heading our way. You will be angry. And you should be angry.
Albert Edwards
If the public knew how much damage monetary policy has wrought, they would march on The Fed with torches and pitchforks.
Yellen is exposed as one who would not see a crisis coming if she was sitting on a broken Levee in New Orleans during Katrina.( my analogy ). Serious reform ( unfortunately highly unlikely ) of the Fed's culture is required if they are going to
be successful in their regulatory role and anticipate/prevent/manage the next financial disaster. With Yellen in charge America will never return to normal interest rates and un-do the economic distortions ZIRP creates.