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?