The title is a Cajun expression meaning Let The Good Times Roll!
I rarely write about the Federal Reserve, although the subject is very much in the news because of Ron Paul's candidacy—abolish the Fed! But I used to write about it in the early days of this blog. I know that others like my colleague Bill Hicks have already done this story, but some temptations, like a great glass of Pinot Grigio or unbridled fornication, are just too sweet to resist.
I'll quote the New York Times story Inside the Fed in 2006: A Coming Crisis, and Banter.
WASHINGTON — As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.
The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was “rising through the roof.”
But the officials, meeting every six weeks to discuss the health of the nation’s economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast.
“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006.
There's plenty more where that came from. Read the Times article in its entirety or look at Tim Iacono's Greenspan's Sycophants In Praise Of Susan Bies.
I am unaccustomed to speechlessness, so I am glad to have some older posts to fall back on. These are The Wisdom Of The Federal Reserve, Ben Bernanke Week and Nobody F**ks With The Jesus. All were written in the first half of 2010. I will reprint the latter two posts here.
Ben Bernanke Week (DOTE, January 26, 2010)
Fed Chairman Ben Bernanke's reappointment is up for a vote this week in the Senate. Those interested in his unbelievable obtuseness on the Housing Bubble should read Barry Ritholtz's Observations On Bernanke. To this day, Bernanke denies that Greenspan's low interest rates after the 2001 recession had anything to do with inflating the bubble.
Allow me to quote from John Kenneth Galbraith's The Great Crash 1929, pages 26-27.
The regulation of economic activity is without doubt the most inelegant and unrewarding of public endeavors...
The great exception to this dreary story is the regulatory activity of the central bank—with us, the Federal Reserve System. Here is regulation of a seemly and becoming sort. No one apologizes for it; men of impeccable conservatism would rise to espouse such regulation were they call upon to do so, which they almost never are. This regulation is not the work of thousands of clerks... Rather it emerges in the measured and orderly discussion of men of quiet and dignified mien, each at his accustomed place around a handsome table in a richly paneled and richly draperied room. These men do not issue orders; at most they suggest. Chiefly, they move interest rates, buy or sell securities, and, in doing so, nudge the economy here and restrain it there.
Because the meanings of their actions are not understood by the great majority of the people, they can reasonably be assumed to have superior wisdom. Their actions will on occasion be criticized. More often they will be scrutinized for hidden meaning.
Such is the mystique of central banking. Such was the awe-inspiring role in 1929 of the Federal Reserve Board in Washington, the policy-making body which guided and directed the twelve Federal Reserve banks. However, there was a jarring difficulty. The Federal Reserve Board in those times was body of startling incompetence.
And this is also the story of 2006 when Bernanke became Fed Chairman, and before that during the Greenspan Era when Bernanke was merely a cheerleader for the now discredited Bubble Master. Did Bernanke suggest there was trouble in 2006? No. Did Bernanke nudge the economy here, restrain it there? No.
Galbraith goes on to explain that when the economy is booming as it was during the Housing Bubble, government officials (or central bankers) will never use their regulatory powers or powers of persuasion to end the madness. For if they were to intervene to prevent economic catastrophe, to prevent the bubble from blowing up, they would need to blow it up. This is a delicate matter requiring deft maneuvering. Think of a balloon. Does it make any difference in the effect if you prick it with a pin, as opposed to dropping an anvil on it? Still, it could have been done or at the very least, warnings could have been issued. This would have required great courage.
Money was being made. People were being fleeced. All was right with the world, especially the banking world. As the Cajuns say, Laissez les Bon Temps Roulez! But had action been taken, everyone would know exactly who was to blame for ending the Good Times. They would know exactly who the party poopers were. Here's Galbraith again—
The very effectiveness of such a measure was the problem. Of all the weapons in the Federal Reserve arsenal, words were the most unpredictable in their consequences. Their effect might be sudden and terrible. Moreover, these consequences could have been attributed with the greatest of precision to the person or persons who uttered the words. Retribution would follow. To the more cautious of the Federal Reserve officials in the early part of 1929 silence seemed literally golden.
As Galbraith said in another context, Ben Bernanke was not a man "to expedite his own demise." Neither was Alan Greenspan. So the Housing Bubble was allowed to run its course right up to the inevitable crash while Bernanke, just like Greenspan before him, said plain vanilla things like this—
I think over a period of time, the housing prices are likely to stabilize. I don’t expect them to keep rising at this rate indefinitely; I don’t think anybody really does. But, again, I do think that the bulk of the increases are associated with strong economic fundamentals. (9 Aug 2005)
And later this—
Home prices, which have climbed at double-digit rates in recent years, still appear to be rising for the nation as a whole, though significantly less rapidly than before. These developments in the housing market are not particularly surprising, as the sustained run-up in housing prices, together with some increase in mortgage rates, has reduced affordability and thus the demand for new homes.” (9 July 2006).
Etc. So, should we let the Chairman continue in his job? Of course not.
The Federal Reserve Board in those times was body of startling incompetence. And I would add, startling timidity (at least right up to the day the financial system melted down). Bernanke still defends his indefensible stance. Ben says bubbles can't be identified. What he knows and doesn't know follows directly from an overpowering impulse to cover his ass. But History will not treat him well. And where are short-term interest rates? They're at 0.25%. Here we go again!
It is what it is. And what it is is what it was in 1929.
I would only add now that the Federal Reserve Board in more recent times was a body of startling cluelessness. And now...
Nobody F**ks With The Jesus (DOTE, January 29, 2010)
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