Henry Kaufman, the former Salomon Brothers chief economist, now president of Henry Kaufman & Co, blamed directly Friday the Federal Reserve for allowing the global credit crisis to happen and said the agency must be reshaped as a tough regulator to stop big financial institutions from taking excessive risks.
In a speech titled “Who is Primarily Responsible for the Credit Crisis?” he gave to conference in New York, Kaufman said the Federal Reserve opened the door to global credit crisis.
“One of the Federal Reserve’s biggest blind spots when it comes to structural changes has been its failure to recognize the problems that huge financial conglomerates would pose for financial stability — including their key role in the current debt overload,” Kaufman said. [via WSJ]
“I am convinced that the misbehavior of some would have been much rarer — and far less damaging to our economy — if the Federal Reserve……had measured up to their responsibilities….At a minimum, the Fed’s sensitivity to financial excesses must be improved,” he added. [Reuters]
Kaufman also directly criticized former Fed Chair Alan Greenspan for not using his position to prevent the nation’s largest banks and others from taking big risks.
“Alan Greenspan spoke about irrational exuberance only as a theoretical concept, not as a warning to the market to curb excessive behavior,” Kaufman said. “It is difficult to believe that recourse to moral suasion by a Fed chairman would be ineffective.” [Reuters]
Kaufman is a prominent Wall Street economist and well known as an expert on monetary policy and how financial markets work. He correctly forecast higher inflation and interest rates in the 1970s and 1980s.