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Janet Yellen

Ben Bernanke - Alan Greenspan

Janet Yellen expressed early worries about house prices.
While she did not expect the financial collapse — few did — she understood it better than many as it was under way,
to the point of giving a lecture on “A Minsky Meltdown: Lessons for Central Bankers” in April 2009.
Martin Sandbu FT 27 November 2017

She has achieved this while being wonderfully undogmatic in admitting how difficult it is for central bankers to understand the current state of the economy.
This openness shows in the fertile intellectual contributions of the Fed system under her direction.

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From her lecture:
- With the financial world in turmoil, Minsky’s work has become required reading. It is getting the recognition it richly deserves.

The dramatic events of the past year and a half are a classic case of the kind of systemic breakdown that he—and relatively few others—envisioned.
Central to Minsky’s view of how financial meltdowns occur, of course, are “asset price bubbles.”

Click here for the full lecture

More about Minsky at IntCom

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Fed's Yellen expects no new financial crisis in 'our lifetimes'
That’s an unusually bold statement for any Fed leader, much less the chair.
Patrick Watson at John Mauldin 3 July 2017

The return of Keynesianism
Martin Sandbu's Free Lunch, FT 24 October 2016

A speech given by Federal Reserve chair Janet Yellen 10 days ago has received a lot of attention in the economic community
and deserves an even broader hearing.

Its modest focus — it is titled “Macroeconomic research after the crisis” — is deceptive.

Beyond useful research recommendations, Yellen’s words carry more profound implications,
including an admission of the extent to which central bankers are navigating in the dark,
and a return to much more aggressive policies for demand management than modern macroeconomic theory had until recently admitted.

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When the dust settled, I was left with a profound sense of sadness over
our global economic leadership’s obvious lack of understanding of the real world.
John Mauldin, 4 September 2016

A rate rise this month — to which investors still ascribe a low probability — would be a serious mistake.
The risk is not just a sudden jolt to financial markets around the world.
An increase in borrowing costs now would also confirm suspicions that the Fed is working with substantially the wrong model of monetary policy in mind
FT editorial 9 September 2016

With inflation and inflation expectations still below target, the Fed would be raising rates on the basis of historical relationships between the real economy and prices,
with little appreciation that the world may fundamentally have changed.

The central bank should instead ensure that nominal growth has some serious momentum behind it before applying the brakes.

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Money is TIGHT
We hear it all the time – central banks are printing money like no time before and
it is not working and now there is nothing more central banks around the world can do to fight deflation.
However, this is all a myth and this is what I will demonstrate in this post by looking at global money base growth.
The Market Monetarist 15 May 2016

It is very damaging that the idea has been allowed to take hold that central bankers cannot or should not do more.
Sandbu Wren-Lewis, April 2016

Simon Wren-Lewis has just asked the important question of whether their bad policies will erode central banks’ independence from political interference.

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Greenspan, 88:
How to unwind the huge increase in the size of its balance sheet with minimal impact.
It is not going to be easy, and it is not obvious exactly how to do it.
Interview with Alan Greenspan, MarketWatch 24 July 2014

Too Big to Fail
Though the Fed was partly responsible for the regulatory failures
that led to the global economy’s near-meltdown in 2008-2009,

post-crisis reform has left it with even greater authority and more responsibility for overseeing the financial system.
Simon Johnson, Project Syndicate 24 July 2014

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario.

The main problem is that the Fed has not moved with alacrity to implement fully key provisions of the Dodd-Frank financial reforms, which were passed in 2010.

For example, the Dodd-Frank legislation specifies that all large financial institutions should draw up meaningful “living wills” – specifying how they could be allowed to fail, unencumbered by any kind of bailout, if they again became insolvent.
Creating such living wills is not an option; it is a requirement of the law.

Yet, in a recent speech that reviewed the landscape of financial reform, Fed Vice Chairman Stanley Fischer skipped over the requirement almost completely.

In recent interviews, including with The New Yorker, Fed Chair Janet Yellen has indicated at least general concerns about financial-sector behavior and the vulnerability of big banks. But unless the Fed acts on such concerns – including by implementing the requirement that large financial institutions adopt meaningful living wills – its independence will come under even greater pressure.

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Too Big to Fail

BIS Slams the Fed
"A Controlled Collapse?"
I propose Yellen is clueless. If she had any sense, she would have acted in advance to prevent an asset bubble
or at least stall the one Bernanke had started.
The Fed is not going to attempt a controlled collapse.
Yet, a collapse is coming. It will be anything but controlled.
Mike "Mish" Shedlock, 11 July 2014

Alan Greenspan suggested home prices could not fall;
Ben Bernanke suggested the subprime mortgage market problems were contained; and
Janet Yellen argues complacency in the market is not a problem.
Axel Merk, Financial Times 9 July 2014

The current Federal Reserve chair, just like her predecessors, might well live to regret those words.

Complacency is the absence of fear; in the markets it is reflected in low volatility.

When asset prices rise on the backdrop of unusually low volatility, investors unaware of dormant risks are lured into the markets. And because there is such low perceived risk, investors are tempted to gear themselves up, ie borrow money to invest.

However, at the first sign of volatility flaring back up, which could come from any number of reasons, those investors might sell out of their positions in a heartbeat screaming, “I didn’t know this was risky!” .

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David Wessels bok om finanskrisen 'In Fed we Trust' Ben Bernanke's War on the Great Panic
I december firade Federal Reserve 100 år.
I december var det också fem år sedan styrräntan sänktes mot noll.
Louise Andrén Meiton, SvD 28 mars 2014

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In FED We Trust: Ben Bernanke's War on the Great Panic, Amazon

David Wessel

Louise Andrén Meiton

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Janet Yellen announced February 19th that America’s central bank is moving to
cut off the massive financial lifeline that has been subsidizing the European banking system since the beginning of the global financial crisis in March of 2008.
By delaying foreign bank compliance with the stringent capital and borrowing requirements of section 165 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) imposed on American banks,

the Fed was engaging in the moral hazard of allowing Europe to borrow at virtually zero interest from the Fed to fund its bloated social welfare states.
Chair Yellen’s actions mean the Fed is cutting off Europe and providing greater support for U.S. borrowing.
Breitbart, 24 February 2014

As the world’s financial system stood on the verge of collapse in October 2008, Janet L. Yellen...
Mr. Bernanke, as chairman, played the role of mediator and consensus builder, Ms. Yellen often became the most outspoken defender of the policies, and a reference point for others.
New York Times, FEB. 21, 2014

The meetings of 2008 are littered with moments where other members of the committee used Ms. Yellen to support their own points, leading to lines like, “as President Yellen pointed out,” and “as President Yellen noted.”

But even as the committee agreed to take ever more extraordinary actions, Ms. Yellen voiced her steady disappointment that her colleagues were not doing more to help the economy.

“Historical precedents, such as the case of Japan, teach us that it is a mistake to act cautiously as the economy unravels,” she said in late October.

But even Ms. Yellen, for all her fears about a looming recession, underestimated what was coming down the road. In April, she was still projecting that the economy would grow 1.5 percent in the second half of the year.
After the March rescue of Bear Stearns, the investment bank, Ms. Yellen said that “the likelihood of a severe financial panic has diminished.”

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On the morning after Lehman Brothers filed for bankruptcy in 2008, most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis.
The Fed’s policy-making committee voted unanimously against bolstering the economy by cutting interest rates, and several officials praised what they described as the decision to let Lehman fail,
saying it would help to restore a sense of accountability on Wall Street.
New York Times, 21 February 2014

Transcripts of the U.S. central bank's meeting on Sept. 16 2008
Federal Reserve policymakers, in an emotional meeting on one of the darkest days of the 2008 financial crisis,
were worried the failure of Lehman Brothers a day earlier would wreak havoc on a teetering financial system
but feared cutting already low interest rates might prove an over-reaction.
Feb 21, 2014 Reuters/CNBC

Janet Yellen starts off with a problem that affected none of her predecessors:
the Fed has run out of ammunition.
Moreover the one remaining weapon the Fed thinks it has – the hocus-pocus of “forward guidance” – is a gun that fires blanks.
Edward Luce, FT 9 February 2014

Fed’s chief weapon, lowering interest rates, was used up a long time ago.
The US is now in its sixth year of zero interest rates.

A widely forecast year of US take-off is once again in danger of faltering before it happens.
US job creation since November has averaged 116,000 a month
– well below escape velocity.

Some, including Lawrence Summers, who was Barack Obama’s controversial first choice to replace Mr Bernanke, believe America’s equilibrium interest rate is minus several percentage points. His argument set off a fierce debate about “secular stagnation”.

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The minutes from Federal Reserve meetings show that she did consider the possibility of a property market bubble as early as 2005,
but along with the rest of the Fed committee failed to predict the scale of the financial crisis that started in 2007.
BBC 3 February 2014

"She was one of the people that did raise alarm bells, but I think like many others who saw the problems coming she did not anticipate the magnitude of the difficulties,"
according to Joseph Stiglitz, the economist who shared the 2001 Nobel Prize with Mr Mr Akerlof, and who knows Ms Yellen well.
"That was a very different attitude from many in the mainstream who saw absolutely no problem right up until the crisis," Mr Stiglitz told the BBC.

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Bernanke has been a great Fed chairman who helped to avert financial meltdown
His emergency policies aided recovery
but now Yellen must engineer a successful escape
Roger Bootle, 2 Feb 2014

Before Bernanke, Alan Greenspan was in the job for nearly 19 years. For most of that time he was regarded as a combination of wizard and saint. In September 2002, he received an honorary knighthood from the Queen. When he left office, in 2006, markets and commentators wondered how the US economy, and indeed the world, could manage without him.

Before very long, though, as the true extent of the financial disaster became apparent, Alan Greenspan’s reputation underwent a full revision

Ben Bernanke took over at a critical moment for the US economy. He, too, made a serious error, related to Greenspan’s. He was slow to realise that the US housing market, and particularly the sub-prime sector, posed a systemic risk to the financial system and indeed to the whole US and world economies.

But when he realised what was happening and what was at stake, Bernanke took radical action. He presided over dramatic innovations in financial and monetary policy, including the programmes of asset purchases known as quantitative easing (QE).

Indeed, he was so in favour of the policy that his nickname was “helicopter Ben”, reflecting the musings of the high priest of monetarism, Milton Friedman,

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