THE OLD SAYING has it that no good deed goes unpunished. The chairman of the Federal Reserve, Ben Bernanke, and everyone else who works for the place ought be forgiven if that phrase has ruefully gone through their minds as of late.
After all, all the Fed did was save us from a second Great Depression. For accomplishing this feat, a success that can only be described as unparalleled in the history of monetary policy, this august institution has found itself under attack from all sides. It would be one thing if these attacks came only from the usual suspects, who have their own reasons for lambasting the Fed at every turn, but increasingly the Fed has become an easy target for attacks from people who ought know better.
The usual suspects, of course, are the old hard-money types who have a ridiculous attachment to gold – to my ear, they even say the word as if they just discovered some in the back of Sutter’s Mill -- and the idea of a gold standard. They view our current monetary arrangements as a disaster, resulting in deficits and rampant inflation, and long for the supposed security of the metal.
Your correspondent finds this a bit daft, as real estate – or any real property – does the same job without the unpleasant tax treatment and costs of storage, but that’s a story for another day. I have no doubt these folks are morally upstanding people who only want the best for their families and society as a whole, but I do think they’re wrong on this one, and have been for a long time.
But it’s not the goldbugs or their criticism of the Fed that irks me – like the poor, they shall always be with us. What does annoy me is the criticism that comes from people who really should know better – or who are blaming the Fed for failures that should be laid at their doorstep.
Exhibit A, in this instance, is U.S. Sen. Bernard Sanders, I-Vt. Sen Sanders, reportedly an actual socialist, does not like the fact that over the course of the past few years, the Federal Reserve loaned out some $3.3 trillion to various corporations and financial institutions throughout the world. Inconveniently for the Senator, this did not result in any actual loss to the Fed – in fact, it made a profit on the loans – but it still, according to Sen Sanders, resulted in a secret “backdoor bailout” on a “jaw-dropping” scale.
One wonders what alternative Sen Sanders would have wanted. After all, the Fed made these loans when the credit markets had completely seized up, and no private institution wanted to loan money to anyone. Had no money been available, it would have caused a cascading failure of private enterprise, and would have made today’s 9.8 percent unemployment rate look like a walk in the park.
Sen Sanders seems more piqued that the Fed did not, in his words, force “banks receiving assistance to step up lending to small businesses and to ease credit for consumers.”
Well, whose fault is that, one wonders? Perhaps Sen Sanders ought look at the Department of the Treasury, to say nothing of the lawmakers whose policy approaches can only be described as schizophrenic. Look how they handled TARP:
GOVERNMENT: Great news, everybody! We’ve got a $700 billion fund from Congress to help out banks and industry!
BANKER: Oh thank God.
SECOND BANKER: Praise the Lord!
THIRD BANKER: That’s great, but we don’t need it. Thanks, though.
GOVERNMENT: But you have to take the money too.
THIRD BANKER: What?
GOVERNMENT: Look, people are panicking. If they see Phil and Ted here took the money while you didn’t, there’s going to be a shitstorm and it won’t do anyone any good. So everyone has to borrow money even if they don’t need it.
THIRD BANKER: Well, if it stabilizes the system …
GOVERNMENT: Great. Just sign here.
(THIRD BANKER signs).
GOVERNMENT: OK, great. Wait a minute! How much are you paying your people? AND YOU’RE DOING THAT WITH OUR MONEY?!
THIRD BANKER: What? You wanted us to take the money, and –
GOVERNMENT: THIS IS COMPLETELY OUTRAGEOUS! WE SHALL HOLD HEARINGS ON CAPITOL HILL AND LAMBASTE YOU IN FRONT OF THE AMERICAN PEOPLE! CONSIDER YOURSELF SERVED, YOU SCUM.
Then, of course, there was the whole issue of capital reserves.
BANKER: Thanks for the loan. Now we’re adequately capitalized again.
GOVERNMENT: Good. Glad we could help. Oh, that reminds us: WHY AREN’T YOU LOANING MORE MONEY TO SMALL BUSINESS AND CONSUMERS?!
BANKER: What? You wanted us to improve our capital ratios, so we did.
GOVERNMENT: THIS IS COMPLETELY UNACCEPTABLE!
BANKER: OK, so let me get this straight. You want us to improve our capital ratios but loan more money out to people, all at the same time.
BANKER: Those goals are completely contradictory. So which one of those do you want us to do?
SECOND BANKER: But we checked with accounting and they said the numbers don’t add up.
GOVERNMENT: HEARINGS! CAPITOL HILL!
Of course, the most scorn can be dumped upon the Government’s infamous $787 billion stimulus program. That a stimulus program was necessary is not in dispute; it absolutely was, and anyone who says otherwise is playing political games. But its design was so amazingly flawed, and in many cases so incredibly stupid, that in the end it was far less effective than it could have been.
After all, that’s $787 billion. There are roughly 306 million Americans, so that works out to roughly $2,572 for every man, woman and child in America. Let’s further say $287 billion would be spent on necessary things like roads, bridges and other construction projects we’ve been meaning to get around to eventually. That leaves $500 billion dollars, or $1,634 for every man, woman and child. If that $500 billion had been directly distributed to the American people, you’d have solved a hell of a lot of the problems right there. I mean, if a typical family got a check for $6,700 from the Government, and many of those dollars got spent, the multiplier effect would be incredible. Even if much of it was used to pay debt, it would free up a hell of a lot of cash flow.
Instead, the Government somehow managed to spend hundreds of thousands of dollars on each of the largely make-work jobs they created, along with protecting their most important constituents – those on Governmental payrolls – from the ravages of the economic storm. Those in the private sector, meanwhile, got a tax cut of … oh, eight bucks a week.
So I do hope you’ll pardon my skepticism when the same people, who thought eight dollars a week would spark an economic recovery Croesus himself would envy, cast scorn upon the one institution that actually has known what it's doing during this whole mess. I also hope you’ll pardon my amazement that people who couldn’t run a hot-dog stand if their lives depended on it now demonize an institution that, just a short while ago, saved the entire financial system from careening into an abyss.Posted by Benjamin Kepple at December 7, 2010 08:50 PM | TrackBack