I Am Superman: The Federal Reserve Board and the Neverending Crisis

Chapter

Abstract

This article asserts that, in dealing with the 2007–2009 financial crisis, the Federal Reserve Bank (Fed) has placed its role as monetary agency and de facto steward of the market for U.S. Treasury debt ahead of its statutory responsibility for ensuring the soundness of the private banks. This is not to say that the Fed supplies whatever credit the government wants—at least not yet—but in terms of both the provision of credit to the private financial system and the price of this credit, the growing fiscal imbalances of the U.S. government seem to be playing an increasing role in Fed policy decisions. This chapter explores some of the issues involved in recent Fed policy decisions and draws some preliminary conclusions as to the conflicts between the Fed’s role as central bank and also as prudential supervisor.

Keywords

Depression Europe Income Schizophrenia Volatility 

References

  1. Adrian T, Shin HS (2008) Money, liquidity and financial cycles. Princeton University, Princeton, NJ, June. http://www.princeton.edu/∼hsshin/www/CImoney2.pdf
  2. Alford R (2009) Systemic risk: is it black swans or market innovations? Inst Risk Anal 18 AugGoogle Scholar
  3. Benink H, Goodhart CAE, Lastra RM (eds) (2007) Prompt corrective action and cross-border supervisory issues in Europe. The Financial Markets Group Special Paper 171, The London School of Economics and Political Science, Apr. http://feweb.uvt.nl/pdf/2009/LSE_Special_Paper_PCA.pdf
  4. Bernanke B (2010) Preserving a central role for community banking. Independent Community Bankers of America National Convention, 20 Mar. http://www.federalreserve.gov/newsevents/speech/bernanke20100320a.htm
  5. Board of Governors of the Federal Reserve (1999) Testimony of Patrick Parkinson, Associate Director, Division of Research and Statistics, on Modernization of the commodity exchange act, before the subcommittee on risk management, research, and specialty crops. Committee on Agriculture, U.S. House of Representatives, 18 May. http://www.federalreserve.gov/boarddocs/testimony/1999/19990518.htm
  6. Board of Governors of the Federal Reserve (2008) Testimony of Patrick M. Parkinson, Deputy Director, Division of Research and Statistics, on Credit Derivatives, before the committee on agriculture, U. S. house of representatives, 20 Nov. http://www.federalreserve.gov/newsevents/testimony/parkinson20081120a.htm
  7. Board of Governors of the Federal Reserve (2005) Testimony of Patrick M. Parkinson, Deputy Director, Division of Research and Statistics, on the commodity futures modernization act of 2000, before the committee on banking, housing, and urban affairs, U.S. house of representatives, 8 Sept. http://www.federalreserve.gov/boarddocs/testimony/2005/20050908/default.htm
  8. Checki TJ (2009) Keynote Address, Foreign Policy Association Corporate Dinner, St. Regis Hotel, New York, NY, December 2, 2009. Transcript available at http://www.fpa.org/usr_doc/2009_Corporate_Dinner_Checki.pdf
  9. Colander D (2009) The risks of financial modeling: VaR and the economic meltdown. Testimony submitted to the Congress of the United States, House Science and Technology Committee, 10 Sept. http://democrats.science.house.gov/Media/file/Commdocs/hearings/2009/Oversight/10sep/Colander_Testimony.pdf
  10. Eisenbeis R, Kaufman G (2007) Prompt corrective action and cross-border supervisory issues in Europe. The Financial Markets Group, The London School of Economics and Political Science, pp 5–62, Apr. http://www2.lse.ac.uk/fmg/documents/specialPapers/2007/sp171.pdf
  11. Federal Open Market Committee (2003) Briefing on monetary policy alternatives. 28 Oct. http://www.federalreserve.gov/monetarypolicy/files/FOMC20031028bluebook20031023.pdf
  12. Friedman BM (2007) The failure of the economy & the economists. The New York Review of Books, 28 May. http://www.nybooks.com/articles/archives/2009/may/28/the-failure-of-the-economy-the-economists/
  13. Garcia G (2007) Prompt corrective action and cross-border supervisory issues in Europe. The Financial Markets Group, The London School of Economics and Political Science, pp 137–150, Apr. http://www2.lse.ac.uk/fmg/documents/specialPapers/2007/sp171.pdf
  14. Hetzel RL, Leach RF (2001) The treasury-fed accord: a new narrative account. Federal Reserve Bank of Richmond. Q Econ 87(Winter):33–34Google Scholar
  15. Kaufman H (2009) The road to financial reformation: warnings, consequences, reforms. Wiley, Hoboken, NJ, p 186Google Scholar
  16. Kopecki D (2010) U.S. bank profits may suffer on senate bill, JPMorgan says. Bloomberg News, 27 May. http://www.bloomberg.com/apps/news?pid=21072065&tkr=CMC:GR&sid=aVAIJVfagzys
  17. Lahart J (2009) Mr. Rajan was unpopular (but prescient) at greenspan party. Wall Street Journal, Eastern Edition, 1/2/2009, Vol. 253, Issue 1, p. A7.Google Scholar
  18. Mayer M (1993) Nightmare on wall street: Salomon brothers and the corruption of the marketplace. Simon & Schuster, New York, NYGoogle Scholar
  19. Mayer M (2001) The fed: the inside story of how the world’s most powerful financial institution drives the markets. Free Press, New York, NYGoogle Scholar
  20. Meltzer AH (2010) Testimony, house financial services committee (March 17). http://www.house.gov/apps/list/hearing/financialsvcs_dem/meltzer.pdf
  21. Morgenson G (2010) It’s time for swaps to lose their swagger. New York Times, 27 Feb. http://www.nytimes.com/2010/02/28/business/economy/28gret.html?pagewanted=al
  22. Morgenson G, Story L (2010) How Goldman pressed A.I.G. for cash. New York Times, B1, 1 JulGoogle Scholar
  23. Reddy S, Paletta D (2009) Wall Street Journal, Eastern Edition. 10/21/2009, Vol. 254, Issue 95, p. A2.Google Scholar
  24. Sethi R (2010) The new market makers. 4 June. http://rajivsethi.blogspot.com/2010/06/new-market-makers.html
  25. Soros G (2010) George Soros speech at Humboldt University. 23 June. http://www.georgesoros.com/interviews-speeches/entry/george_soros_speech_at_humboldt_university/
  26. Taleb N (1997) Against value-at-risk: Nassim Taleb replies to Philippe Jorion. http://www.fooledbyrandomness.com/jorion.html
  27. Taylor JB (2010) Getting back on track: macroeconomic policy lessons from the financial crisis. Federal Reserve Bank of St. Louis, Review, May/June. http://research.stlouisfed.org/publications/review/10/05/Taylor.pdf
  28. Wallison PJ (2010) Ideas have consequences: the importance of a narrative. Financial Services Outlook, May. http://www.aei.org/outlook/100960
  29. Whalen C (1993) Gone fishing: E. Gerald corrigan and the era of managed markets. Herbert Gold Soc. http://www.rcwhalen.com/pdf/fishing.pdf
  30. Whalen C (2008) A change in bank control: interview with Ernest Patrikis. Inst Risk Anal 9 JulyGoogle Scholar
  31. Whalen C (2008) Fed chairmen and presidents: roundtable with Roger Kubarych and Richard Whalen. Inst Risk Anal 30 OctGoogle Scholar
  32. Whalen C (2008) New hope for financial economics: interview with Bill Janeway. Inst Risk Anal 17 NovGoogle Scholar
  33. Whalen C (2009) IndyMac, FDICIA and the mirrors of wall street. Inst Risk Anal 6 JanGoogle Scholar
  34. Woodward B (2001) Maestro: Greenspan’s fed and the American boom. Simon & Schuster, New York, NYGoogle Scholar

Copyright information

© Networks Financial Institute 2011

Authors and Affiliations

  1. 1.Institutional Risk AnalyticsTorranceUSA

Personalised recommendations