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A review by socraticgadfly
The Lords of Easy Money: How the Federal Reserve Broke the American Economy by Christopher Leonard
5.0
A great, easy-to-read and hard-hitting book that tells how the Fed got to the point of recent asset bubbles and how we’re all basically screwed if we don’t have assets, and hence, how it increased asset inequality, which is far bigger than income inequality.
Leonard notes the story starts back in the 1970s, as Tricky Dick tried to deal with the detritus of LBJ’s guns and butter, and how that led to wage and price controls, then stagflation, then the Carter-Reagan recession and of course Paul Volcker. (He actually starts with a few pages on the creation of the Fed.)
But, after Volcker’s harsh medicine, and even more after an even more jobless recovery after a fairly mild Poppy Bush recession, the Fed uncoupled worries about asset inflation from worries about price inflation. And, pumped more money into the asset world at any signs of slowdowns.
That’s how we got asset bubbles starting under Greenspan, and getting on average worse and worse, until the Great Recession, with the medicine for that now worse yet.
The hero, if you will, or would-be hero? Tom Hoenig, former Kansas city Federal Reserve chief and a regular, rotating member of the Fed’s Open Market Committee. He saw by the time we’re at Ben Bernanke’s post-Great Recession actions, that Bernanke was both creating new asset bubbles and that there’d be trouble down the road. As the Kansas City Fed’s bank examiner back in the early years of the story, he’d seen problems in the 1980s with places like Penn Central and smaller banks as well.
But, he couldn’t get others of the 12 to join him in dissents.
He eventually, in Obama’s first term, took a senior position at FDIC. There, he wanted to bring Glass-Steagall back. He thought Dodd-Frank too arcane, too unwieldy, and maybe too easily gameable. But, with the “no regulations, just wrong” Tea Party now in the ascent, no chance. And, without a Trump offer to either run the FDIC or to have the Fed’s job of overseeing backs, he left DC again.
There’s a few items of alphabet soup. A biggie? A CLO, which is the big biz version of CDOs, the collateralized debt obligation on subprime mortgages there were a key factor on the Great Recession. The L is for “loan.” Big biz loans were collateralized at a rate that picked up speed when Bernanke started quantitative easing. The same lies were told about their tranches as with CDOs, and, with COVID, the same shit hit the fan.
The asset liquidity, as Hoenig and a few others figured, led to the massive amount of stock buybacks far more than to jobs. And, with CEOs being paid in stock options, increased asset inequality.
All good stuff, and short of nationalizing some banks, it’s why we’re screwed.
==
Note: Don't know about here, but at Yellow Satan, one-starrers with full reviews appear to be full-on Trumpists. Well, Trumpists, Cheeto put Jay Powell in charge of the Fed, so "gotcha" right there. Two-starrers claim that Leonard doesn't say what else could be done. Not the purpose of the book. He talks about what shouldn't have been done in the first place because it wasn't effectual.
Leonard notes the story starts back in the 1970s, as Tricky Dick tried to deal with the detritus of LBJ’s guns and butter, and how that led to wage and price controls, then stagflation, then the Carter-Reagan recession and of course Paul Volcker. (He actually starts with a few pages on the creation of the Fed.)
But, after Volcker’s harsh medicine, and even more after an even more jobless recovery after a fairly mild Poppy Bush recession, the Fed uncoupled worries about asset inflation from worries about price inflation. And, pumped more money into the asset world at any signs of slowdowns.
That’s how we got asset bubbles starting under Greenspan, and getting on average worse and worse, until the Great Recession, with the medicine for that now worse yet.
The hero, if you will, or would-be hero? Tom Hoenig, former Kansas city Federal Reserve chief and a regular, rotating member of the Fed’s Open Market Committee. He saw by the time we’re at Ben Bernanke’s post-Great Recession actions, that Bernanke was both creating new asset bubbles and that there’d be trouble down the road. As the Kansas City Fed’s bank examiner back in the early years of the story, he’d seen problems in the 1980s with places like Penn Central and smaller banks as well.
But, he couldn’t get others of the 12 to join him in dissents.
He eventually, in Obama’s first term, took a senior position at FDIC. There, he wanted to bring Glass-Steagall back. He thought Dodd-Frank too arcane, too unwieldy, and maybe too easily gameable. But, with the “no regulations, just wrong” Tea Party now in the ascent, no chance. And, without a Trump offer to either run the FDIC or to have the Fed’s job of overseeing backs, he left DC again.
There’s a few items of alphabet soup. A biggie? A CLO, which is the big biz version of CDOs, the collateralized debt obligation on subprime mortgages there were a key factor on the Great Recession. The L is for “loan.” Big biz loans were collateralized at a rate that picked up speed when Bernanke started quantitative easing. The same lies were told about their tranches as with CDOs, and, with COVID, the same shit hit the fan.
The asset liquidity, as Hoenig and a few others figured, led to the massive amount of stock buybacks far more than to jobs. And, with CEOs being paid in stock options, increased asset inequality.
All good stuff, and short of nationalizing some banks, it’s why we’re screwed.
==
Note: Don't know about here, but at Yellow Satan, one-starrers with full reviews appear to be full-on Trumpists. Well, Trumpists, Cheeto put Jay Powell in charge of the Fed, so "gotcha" right there. Two-starrers claim that Leonard doesn't say what else could be done. Not the purpose of the book. He talks about what shouldn't have been done in the first place because it wasn't effectual.