An Alliance of Convenience: The Congress, the Primary Dealers and the Federal Reserve Board
The American Enterprise Institute in Washington hosted this discussion on the steps taken by the government to stabilize the financial markets. In the first session, AEI resident scholar Vincent R. Reinhart presented his findings gleaned from a series of conversations with market participants. Angel Ubide of Tudor Investment Corporation; Greg Ip, the U.S. economics editor of The Economist; and Christopher Whalen of Risk Analytics then responded.
AEI Discussion on Government Response to the Financial Crisis
My rant on the “Alliance of Convenience” between the Congress, the Primary Dealers and the Fed starts around 0:49 of the 01:43:10 program.
After, I had a thought: Should the GOP draft Sheila Bair as the next presidential candidate? A conservative centrist republican with financial savvy?
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October 10th, 2009 at 12:21 pm
was Kovner there?
October 10th, 2009 at 12:22 pm
Well done Chris,
As you said: “The markets must be able to go from exuberance to terror in order to function [normally].” We have moral hazard instead. Good point on Lehman Bros. Why were they allowed to fail? Removing competition for GS? Alliance of Convenience is conspiracy – as you first said.
We need to have more people like you (and Bair) in important roles in gov’t. Keep speaking the truth.
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Just prior to seeing your commentary, I sent this response to a relative who was asking why the gov’t doesn’t want debt to be reduced right now. My thoughts:
There is too much debt in US economy for it to function in a healthy way. Just like if a person has too much debt they cannot spend on anything extra because they must make their credit card payment, or house payment, etc. Since consumer spending is approx. 70% of GDP (a measure of US economic activity), if the consumer cannot spend, the economy does not grow. Right now the gov’t (taxpayer=citizen=debtor) is taking over for the consumer by indebtedness spending. This cannot go on much longer, as our debt holders (debtee) will not continue to loan us money much longer. The US is becoming a bad credit risk. Think Argentina.
1) The gov’t wants debt to keep increasing, as this has been the way the economy has been growing since 2000 until the economic collapse last year, and early this year. Since wages have not been growing, the gov’t has encouraged people to borrow so as to keep the economy growing. Hence the tech bubble (stocks), and the housing bubble, where people could take out a loan on the equity of their house. Bubbles all collapse, without exception.
2) The gov’t caters to many special interests, but especially the financial industry, and banks. The banks have a lot of real estate related assets still on their books. So if (as) housing prices go down further, the banks have less assets, and more liabilities. This will cause their balance sheet (assets-liabilities) to fall below regulatory requirements, and so be taken over by the FDIC. The gov’t wants to stop this progression, but it cannot. Events of the past have caused this collapse, and there is nothing that can be done to prevent the natural outcome. The gov’t may delay the outcome, but it will happen. The debt must be payed down, or written off.
The problem is that the gov’t is wasting a lot of money trying to “do something”. The danger now is very great inflation, perhaps even hyper-inflation through massive money creation (electronic printing press by the Federal Reserve). I believe that there is a concerted effort to continue this gov’t policy. The real goal is the transfer of wealth from the populace of the US to the bankers. Inflation is a hidden (covert) tax. Since the bankers really run the country, this should not be surprising. So far the plan is working, no?
“The rich rule over the poor,
and the borrower is servant to the lender”
- Proverbs 22:7
“Give me control of a nations money supply, and I care not who makes it’s laws.”
- Mater Amschel Rothschild, founder of the Rothschild banking dynasty.
Now maybe you will understand a little more about how US/world finance works. As Warren Buffet has said, the US is becoming a “sharecroppers society”. Vérité.
http://en.wikipedia.org/wiki/Plutocracy
October 10th, 2009 at 12:36 pm
“And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that. All power corrupts; absolute power corrupts absolutely.” Lord Acton
October 11th, 2009 at 1:00 am
Chris – That rant was top shelf, all-world, nationwide.
It is no mystery why clear, crisp talking points such as yours get so easily lost in the fog of problem resolution on Capitol Hill.
Political will is missing in action.
October 11th, 2009 at 2:11 am
Terrific panel, best discussion I’ve seen yet of this mess.
“centrist republican” ??? Like the guy who reformed welfare and balanced the budget? Good luck with that.
Chris, maybe time for you to draft a manifesto. I’d like to see the two points you made about reform in writing and with plenty of footnotes.
Thank you for your public service, by which I mean mostly your participation in these sorts of events and your blog posts and your sessions with Tom Keene, also of course your willingness to speak to (at?) the congress-critters. For what it’s worth coming from an atheist, God bless you sir.