Authored by James Grant of Grant’s Interest Rate Observer
Over the weekend, Global Financial Crisis-era policymakers Ben Bernanke, Timothy Geithner and Henry Paulson brought the band back together to pen a New York Times opinion piece. After sharing their self-exonerating analysis of the events of 2007-2009 and subsequent response (which one of the three did the fact checking?), Bernanke et al. argue for greater regulatory powers, or as they put it, “adequate firefighting tools,” to resolve future financial crises.
Blanket guarantees of bank debt by the Federal Deposit Insurance Corporation, the Fed’s emergency lending capabilities and the Treasury department’s guarantee of money market funds are among the mechanisms cited by the authors as necessary for crisis prevention and mitigation.
The trio write:
We need to make sure that future generations of financial firefighters have the emergency powers they need to prevent the next fire from becoming a conflagration. We must also resist calls to eliminate safeguards as the memory of the crisis fades. For those working to keep our financial system resilient, the enemy is forgetting.
Alternatively, the monetary mandarins could take a cue from Peter Fisher, former executive vice-president at the Federal Reserve Bank of New York and senior fellow at the Tuck School of Business. Speaking on policy normalization at the Grant’s spring conference on March 15, 2017, Fisher offered a commanding critique of the crisis-era response led by the authors of this weekend’s Times piece. Written 18 months ago, the below passage could serve as a direct rebuttal to the authors, particularly former Fed chair Bernanke:
Curiously, the Fed has acknowledged no failures. All the experiments have been successful, every one: no failures, no negative side effects, no perverse consequences, only diminishing returns.
What has been most extraordinary about extraordinary monetary policy is the awkward denial of uncertainty in defense of extraordinary actions. Wanting so badly to manipulate our expectations, the central bankers did not want to leave us any room for doubt… The Fed and other central banks appear to have avoided being candid about the uncertainty in order to maintain their credibility. But this is backwards. They cannot regain their credibility unless they are candid about the uncertainty and how they confront it.
The full text from Fisher’s remarks is available here. Ben Bernanke, Tim Geithner and Hank Paulson, please copy. Come to think of it, please read.