Tuesday, July 21, 2009

Dismantling The Temple

This is a great article on what needs to happen with regards to the Federal Reserve board.


Just to summarize, Greider is making a case against the Fed and the way they have handled the crisis. He makes the following points on why its dangerous to give the FED more power.

1. It would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction ...The Fed instead allowed, even encouraged, the explosion of debt and inflation of financial assets that have now collapsed....

2. Cumulatively, Fed policy was a central force in destabilizing the US economy. Its extreme swings in monetary policy, combined with utter disregard for timely regulatory enforcement, steadily shifted economic rewards away from the real economy of production, work and wages and toward the financial realm, where profits and incomes were wildly inflated by false valuations...

3. The Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown....

4. The Fed can't be trusted to defend the public in its private deal-making with bank executives...

5. Instead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator. A new superclass of forty or fifty financial giants will emerge ....The Fed, having restored and consolidated the battered Wall Street club, will doubtless also shield a few of the largest industrial-financial corporations, like General Electric (whose CEO also sits on the New York Fed board). Whatever officials may claim, financial-market investors will understand that these mammoth institutions are insured against failure...

6. This road leads to the corporate state--a fusion of private and public power, a privileged club that dominates everything else from the top down

Its a very detailed read, but well worth it. The points he makes about "Too Big To Fail" and "Systemic Risk" are very important. He makes the point that under Obama's plan to create a Systemic Risk Regulator, the road has been paved for a "Corporate State", where "Too Big To Fail' and "Systemic Risk" will be embraced to the point that all future losses will be socialized by the tax payers.

Mr. Greider is essentially concluding that eventually a system has to be created where there is true independence between Monetary Policy and politics.

Good luck on getting that, but at least there is a dialogue on sanity.

The author William Greider is a Central Bank Historian who has written in depth about the FED.


1 comment:

  1. Secrets of the temple is a great read even though it wa swritten some 20 plus years ago.

    Mr. Greider was making the case for too much FED Importance way back then.