Richard Fisher of Dallas Fed in his recent speech points to this memorable quote from John Kenneth Galbraith.
Mind you, one of my professors at Harvard was John Kenneth Galbraith, who warned us that “economic forecasting was created to make astrology look respectable.”
Well only Fisher can point to such quotes.This is another super speech from Fisher whose speeches are always a big hit and full of humor. His last speech was in May 2009 so it has been quite a while.
In this speech he begins by saying:
In his upcoming book, In Fed We Trust: Ben Bernanke’s War on the Great Panic, David Wessel of the Wall Street Journal writes that “Fed officials are the Jewish mothers of the global economy. They always have to worry about something …” He also organizes the Federal Open Market Committee (FOMC) into “cool guys,” “jocks,” “geeks” and “wannabes.” I am classified as one of the “jocks” who, according to Wessel, are “determined to show their manhood by talking tough about inflation and economic rectitude.” So this morning, you are going to hear from a compulsive worrier preoccupied with price stability and monetary integrity.
He looks at two issues in this speech – growth (which he thinks will be weak) and Too Big Too Fail (which is a big worry despite Obama proposals to rein them). He says TBTF was a problem in this cruisis but the bailouts have led to much bigger TBTF institutions. In the end for TBTF he says:
I know my opinions on this subject will hardly endear me to the largest financial institutions. On his death bed, Voltaire (who was neither a Hollywood lyricist nor a movie actor nor the president of the Federal Reserve Bank of Minneapolis) was asked to renounce the devil. He is said to have replied that this was no time for making new enemies. Some think that during this time of crisis and with financial and economic recovery still so tenuous, it is not the right time to think about proposals that make the perfect the enemy of the good. I disagree.
I believe we need to “think long,” as the Californian George Shultz likes to say, and the current policy prescription for treatment of TBTF is a bit shortsighted or, at best, necessary but not sufficient. If we want to avoid a repeat of what has just happened over the past 18 months, we need to exorcise the notion that an institution is too big to fail and remove all incentives for any institution to risk infecting the health of the financial system. If we make some enemies in the process, so be it. The object is to get it right.
Superb all the way.