Nov
28
“THE REAL SCANDAL — Abandoning activism for the rest of us: If I had fully understood what the Fed was doing in the fall of 2008 and the winter of 2008-2009, the truth is that I would have defended it all. Things were falling apart, and the important thing was for monetary policymakers to be engaged in an all hands on deck effort to prevent demand from collapsing and a years-long spell of mass unemployment. If the operational aspects of that get messy a bit “unfair” then so much the worse for fairness and cleanliness. The real scandal has only emerged with clarity in the subsequent years. Having ensured the basic stability of the banking system, monetary policymakers in America proceeded to forget all about their go-getter attitude and ability to reach deep into the practical and legal toolkit in order to get what they want. We’re heading into the winter of 2011, with three years of mass unemployment under our belt and no end in sight. That’s not happening because the Fed was too generous with the free money for banks at the height of the crisis. It’s because once the acute phase of the banking crisis ended, suddenly we returned to small thinking and small-c conservatism. But it can’t be both. If in a time of crisis, the right thing to do is to get “crazy” then there’s plenty more crazy stuff the Fed could be doing to boost overall spending in the American economy. Or if the right thing to do is to stay orthodox and ignore the human consequences, then there was no reason not to stay orthodox three years ago and refuse to lend at anything other than a penalty rate.”
How The Fed’s Generosity Made $13 Billion For America’s Biggest Banks
