Henry Kaufman: Federal Reserve led astray by libertarian dogma
The Federal Reserve has been hobbled by at least two major shortcomings that were primarily responsible for the current and several previous credit crises. Its failure to spot the importance of changing financial markets and its commitment to laisser faire economics were big mistakes and justify a fundamental overhaul of the Fed.
Bill Bonner puts it well over at FleetStreetInvest.co.uk:
How about that? America’s largest car company is going to be state-owned… nationalized… presided over by the federal bureaucrats.
It’s just a part of the shift away from the free market and towards an un-free market. Free market capitalism has failed, say the pundits. Let’s give the feds a chance.
Even Henry Kaufman, writing in today’s Financial Times, says that the Fed’s “libertarian dogma” prevented it from controlling the banks properly.
But the Fed is hardly a libertarian organization. It’s a banking cartel. As a cartel, it looks out for its member banks – and doesn’t hesitate to use state power to do so. There is nothing libertarian about it… and no dogma associated with it – except as Greenspan’s eyewash – that is even vaguely libertarian.
The Fed colluded with member banks to fix interest rates. In so doing, it helped create the biggest bubble in credit the world had ever seen. It was a terrible thing for the average fellow – who was lured deep into debt by rising house prices and cheap credit. But it was a great thing for the members of the Federal Reserve cartel. Profits in the financial sector – notably, the big Wall Street investment banks – soared.
But bankers are vulnerable to too much of a good thing – just like everyone else. Soon, they made the classic Wall Street mistake – they came to believe their own hype. Not only did they gin up trillions of dollars’ worth of preposterous financial instruments… they actually bought these debt bombs from each other.
This posed a grave danger to the nation’s economy… and to the banking system. Henry Kaufman claims the regulators dropped the ball because they put too much faith in the free market. But the regulators were little more than front men for the banks themselves. After Alan Greenspan came Henry Paulson as head of the Fed. He was probably still replying to messages at his old address when the crisis began. And the head of the New York Fed – now, US Treasury Secretary Tim Geithner – was elected to his post by the very institutions he was supposed to be overseeing.
Neither of them was about to stop the party; they and their friends were having too much fun.
I agree it was inconsistency which helped lead to this. You can’t supercharge an industry and remove the governors (regulations) and not expect shit to hit the fan eventually.
Let’s be consistent. Remove the supercharger. Remove the governors. Stop tweaking with a system you can’t possibly control and leave it be. Get rid of the Federal Reserve and it’s monoply on interest rates and money and credit creation. Remove it’s monopoly on legal tender. Treat fractional reserve banking as the fraud it is (in its current form anyway). Allow the bubble created “too big to fail” failures to fail and go into bankruptcy. Oh and stop handing out our grandchildren’s future tax dollars on failed institutions.
Speaking of which… yesterday Obama said that the government should spend as much on R&D as on the military. On Slashdot someone asked why when we are already in debt would we be spending money on something that would help us but costs would be placed on our children. A response was that it would more likely help them because the advancements would come out later.
My question is… what moral authority does this guy have spending future generations money (which will be forcefully taken from them) regardless of who it will directly effect? Is that not taxation without representation? They have had no say in the matter. Why not let the bureaucrat tyrants of their own time decide how best to steal from them?
Related posts:
- President of the New York Federal Reserve Bank advocates global bank framework
- Federal Reserve Bank of New York buying two AIG subsidiaries to pay off debt
- The all powerful Treasury Secretary Henry Paulson speaks
- Market meltdown: Bear, Stearns bought/bailed out by JPM and Federal Reserve
- Lord Keynes would be proud: Federal Reserve System acting as world central bank to foreign central banks
April 28th, 2009 at 1:43 pm
Less greed, more freedoms!
In my mind it’s not that “capitalism” or “free markets” have failed, it’s more like the terms were co-opted by the greed is good crowd. These are the people who have no qualms with using government as a tool to expand their wealth and power, because after all, greed is good as long as you ignore its consequences and how you obtained it… Contrast this with the libertarian belief in individual freedom and property rights. Completely different philosophies, but I think people too often confuse the two.
Regarding your moral authority question… that’s really tough to answer since you could extend that question to vaccination, circumcision, and even birth itself. For a half-serious answer, the children do have a say since they could choose to 1) leave the country, 2) not pay taxes, or collectively 3) default on gov’t loans, 4) replace the gov’t entirely. I must admit, pretty terrible choices to leave to your kids.
April 28th, 2009 at 2:08 pm
I don’t agree with child circumcision or forced vaccination. Creation of life is an entirely different thing from acting on the being.
I was asking the question under the authors presumed belief that ‘representation’ is what makes taxation OK. Most people will argue that the difference between the American British colonies seceding and the CSA was representation in the government. In what way does that jive with taxing the unborn? For a long time we’ve (supposedly) not held son’s responsible for the acts of their fathers…
April 28th, 2009 at 3:55 pm
I don’t want to argue a tangent here, but creation of life doesn’t occur inside a vacuum. Is it active or indirect, I’ll leave that to semantics.
In regards to the topic, I feel that we need to temporarily re-institute the governors and transparency needs to be enforced until the federal government changes at a fundamental level.
It has become apparent that federal government cannot resist attempting to save the system at all costs. (Taxpayer cost to be precise.) Once we can be safe that the government won’t reach into our pockets to bail out those “too big to fail,” by all means, remove the regulations. Until then, if there is any chance that I may be forced to pay for CitiBank’s mistakes, the least they should be required to do is operate outside the shadows of SIVs, Level 3 assets, toxic assets, accounting obsfrucation, etc.
At the moment, I see the sanest transition is to bring back Glass-Stegall, restore reserve requirements, etc. before the centralized economy can be peeled back layer by layer. Without them, I see another bailout relapse on the horizon.
April 28th, 2009 at 5:21 pm
I didn’t claim creation of life occurs in a vacuum. It does however occur without there being the future person to consult. It is fundamentally different from vaccinations and circumcision. The creation of life involves 1 or 2 individuals hopefully in a voluntary manner. The other events involve a sentient being forced into a situation involuntarily.
As for the rest of your comment. No argument from me. Note the post. I said remove the supercharger first.
April 28th, 2009 at 5:23 pm
As for Glass-Stegall… i don’t think that matters anymore. They are all bank holding companies now.
April 28th, 2009 at 5:55 pm
Hold on–let’s not get crazy here. There’s nothing wrong with a good, old-fashioned circumcision.
April 28th, 2009 at 7:38 pm