Federal Reserve Says “One More Drink”

I have to admit, I chuckled upon reading the news today that the Federal Reserve is debating whether and how it may fight the prospects of asset bubbles developing. The Wall Street Journal addresses this story in writing, Fed Debates New Role: Bubble Fighter:

Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing.

Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they’ve followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms “perhaps the most difficult problem for monetary policy this decade.”

With Asian property prices soaring and gold prices busting records almost daily, the debate comes at a critical time. Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power.

At the same time, pending legislation in the House could leave Mr. Bernanke running a less independent institution. The House Financial Services Committee has passed a measure that would subject the Fed’s interest-rate decisions to scrutiny by the Government Accountability Office, an investigative arm of Congress. Mr. Bernanke and others at the Fed fear that with Congress looking over their shoulders, any decision they make about interest rates would be subjected to the winds of politics — making it harder to control inflation or financial bubbles.

My immediate thought upon reading this article is to think of the bartender who is happy to push one more drink upon an overlubricated patron. Or perhaps a junkie who is willing to sell a down and out addict one more fix in order to ease the pain.

The fact is the Fed knowingly and intentionally has worked to rebubble our markets via its easy money policy. This easy money, coordinated with the Fed’s quantitative easing and fiscal policies promoted by Treasury, has reflated the markets while our downtrodden and depressed patrons are drowning their sorrows.

Pushing “one more drink” onto a patron or system that has serious fundamental issues is not now, nor has it ever been, an appropriate policy.

To think the Fed can detect and manage future asset bubbles after creating the past and current bubbles would be comical if it weren’t pathetic.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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1 Comment on Federal Reserve Says “One More Drink”

  1. This is right on as to what is wrong with the economy. The FED only took 17 years to create the great depression. After 15 years of misery and a word war they stayed off the gas until the 70s when they managed to create and other inflationary period. Then an other one in 1987-90 then 94-2000 then 2002-2007 It seems that we were going from one bubble to the next and the bubble they are building now is going to be the bubble of all bubbles. Who had the bright idea to create the FED in the first place.

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