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June 06, 2008
Fed Insiders Criticize Bear Bailout
Fed Richmond Bank President Jeffrey Lacker and Fed Philly Bank President Charles I. Plosser both gave speeches yesterday (Washington Post and Bloomberg via New York Times) criticizing the bailout of the investment bank Bear Stearns by the New York Fed. The Post story lists a number of other insider critics of the action, which could lead to greater risk-taking. When financial companies can count on the fact that they are seen as too-big-to-fail, they take bigger risks. It's also called moral hazard. Our previous Bear blog.
As long as we're on the topic of the Fed, Professor Robert Auerbach of the LBJ School at the University of Texas has a new book out-- Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank. Auerbach served as chief economist under Chairman Gonzalez (and other chairs) of the old House Banking Committee. The book is getting good reviews. I look forward to reading it, as among the events it chronicles are the first five years, 1989-94, that I spent in Washington, while Henry B. -- a consumer and community champion -- supervised the savings-and-loan cleanup. Excerpt from the book:
The Fed could not silence or intimidate Gonzalez. Greenspan and his staff of lobbyists made the rounds in Congress without making any sales that mattered to Gonzalez. The congressman saw to it that the Banking Committee would maintain an arm's-length relationship with Greenspan and institute actual checks and balances. Gonzalez wanted action taken on issues that were important to the country. The heat generated by the Fed and its sympathizers never caused Gonzalez to stop an investigation.
Posted by Ed Mierzwinski at June 6, 2008 08:10 AM
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