Wikinvest Wire

Who does the Fed work for?

Monday, November 23, 2009

Obviously, Tim Duy has never read The Creature from Jekyll Island, otherwise he might not be so quick to write passages like the one below in what is an otherwise fine analysis of the dilemmas faced by the nation's central bank in The Fed in a Corner.

IMAGE Worse now for the Fed is the impression that monetary authorities work first and foremost for Wall Street. Of course, Fed officials see this a bit differently - they see supporting Wall Street as their mechanism for supporting Main Street. Ultimately, without the former, the latter is locked out of capital markets, and economic chaos follows. The purpose of Wall Street is supposed to be to channel investment funds into Main Street. But most Americans no longer view Wall Street as ultimately working in their best interests - maybe correctly. This is the same Wall Street that aggressively pushed garbage loans onto the American people as policymakers praised the wonders of financial innovation. When did the purpose of finance evolve into simply a mechanism to enrich the relative few at the expense of many? And when did policymakers embrace this view? As Paul Krugman has noted, the Fed cannot envision a world not dominated by the magic of structured finance. Yet this is a world that failed us completely.
It all seemed to have worked so well for almost 100 years, since the Fed was founded in 1913 with the unspoken promise of using public money to bail out the big banks.

It's all there in Chapter 2 - The Name of the Game is Bailout.

Chapter 1 is worth a look as well as it contains a detailed description of the 1910 gathering of some of the nation's most powerful bankers along with a few elected officials at Jekyll Island Georgia that led to the formation of the Federal Reserve System.

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Anonymous said...

Tim is one of those people who owe lots of money, and don't want to pay it back. He wants the central bank to inflate away is debts, so he doesn't have to work at a real job to repay is debts. To put this another way, Tim wants the central bank to confiscate other people's goods, and make the other people repay his debts for him. He also wants a secure career path in economics, and paying homage to the central bank is necessary.

This conflict of interest colors his otherwise insightful thought process. He can't understand the harm that printing is doing to the nation, because its in his personal financial interest not to understand.

Still, he does have a few good insights when conflict of interest doesn't prevent him from gleaning them.

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