The US Federal Reserve is a monument to the idea that the market, if left on its own, will destroy everything in its path, including itself
Three recent books suggest that the Fed has the capacity to function as a device of indicative planning, coordinating economic activities to fulfill democratically determined social purposes.
By now you’ve probably heard of collateralized debt obligations, quantitative easing, helicopter drops, shadow banking, hedge funds, private equity, leveraged buyouts, asset pricing, cryptocurrencies, and so on.
Why are the arcane terms of finance – the “secrets of the temple,” as William Greider famously called them – so familiar, and how have its gray protagonists become household names?
The short answer is easy: where bankers go, it seems, shit inevitably meets fan.
These firms – “shadow banks” unbound by any statutory or customary constraints the Fed can impose on “member banks” – have presided over crisis after crisis since October 1987, when a stock market awash in idle money generated by Ronald Reagan’s tax cuts crashed and burned.
Or, rather, with the Fed backstopping them as the “lender of last resort”– ensuring enough liquidity to cash out depositors and clients when they panic and need more than a paper claim on future earnings – these firms have inflated one bubble after another, from the dot-com debacle in 2000 to the 2007-08 subprime mortgage meltdown.
Or, even worse, they have profited from the economic catastrophes such crises keep producing.
The scale of the Fed’s economic interventions since the colossal financial panic in March 2020, when the pandemic became official and it seemed the world would end by April, is almost unimaginable.
The financial markets survived because Powell followed Bernanke’s lead by inventing entirely new ways to quell panic and restore confidence.
Ben S. Bernanke, 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19
Edward Chancellor, The Price of Time: The Real Story of Interest
Lev Menand, The Fed Unbound: Central Banking in a Time of Crisi
James Livingston Project Syndicate 2 December 2022
James Livingston, Professor of History at Rutgers University, is the author of six books, including Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913 (Cornell University Press, 1989), and the forthcoming The Intellectual Earthquake: How Pragmatism Changed the World, 1898-2008 (University of Chicago Press).
Banks Need to Worry About Shadow Banks
Paul J. Davies Bloomberg 17 november 2022
Have You ever seen a soft landing from a bubble?
Of course not. Will this be the first one. Then Mr Greenspan will be famous.
If not he will be infamous. Like the leadership of the Fed in 1929.
Rolf Englund Financial Times debate 7 September 2000
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