Richard Fisher, president of the Federal Reserve Bank of
Since the beginning of the year, I have been worried about the efficacy of reducing the fed funds rate given the problems of liquidity and capital constraints afflicting the financial system. As I see it, the seizures and convulsions we have experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too-tight monetary policy. There is no nice way to say this, so I will be blunt: Our credit markets had contracted a hideous STD — a securitization transmitted disease — for which lowering the funds rate to negative real levels seemed to me to be not only an ineffective treatment, but a palliative and maybe even a stimulus that would only encourage further mischief.
At times like this, it is easy to become melancholy and bitter and cynical. This club, the Money Marketeers, was founded by Marcus Nadler, one of John’s and my predecessors at the Federal Reserve who was there “at the creation.” You will remember that Nadler put forth four simple propositions to counter the intellectual paralysis and down-in-the-mouth pessimism that gripped the financial industry after the Crash of ‘29:
“You’re right if you bet that the
“You’re wrong if you bet that it is going to stand still or collapse;
“You’re wrong if you bet that any one element in our society is going to ruin or wreck the country;
You’re right if you bet that men in business, labor, and government are sane, reasonably well informed and decent people who can be counted on to find common ground among all their conflicting interests and work out a compromise solution to the big issues that confront them.”
This became known as “Old Doc Nadler’s Remedy,” and for my part, it is spot on. Every red-blooded American should keep it in mind.
No comments:
Post a Comment