Fed’s Free Money Beckons This Important Writer: Kevin Hassett
If AIG was too important to fail, can’t I be, too?
The U.S. Financial Stability Oversight Council is working to identify parts of our financial system that can’t be allowed to go under. Once called “too big to fail,” these companies are now referred to as “systemically important” and fall under the authority of the Federal Reserve.
Therein lies my opportunity.
I’m no American International Group Inc., the huge insurer that needed a $182.3 billion federal rescue to survive its central role in the financial crisis. So no, I’m not too big. But I’m important.
See, I’m a Ph.D. economist with a reputation for parsimony fostered by a somewhat infamous wardrobe. My teenage son, for instance, can’t believe I still wear “that sweater.”
If I were to default on my debts, the world would see that even trained economists who spend little on their appearance can’t make ends meet. Imagine the global panic, the massive selloff, that would follow.
Clearly, then, I meet the definition of systemically important. Not convinced? The Dodd-Frank financial law, in creating the Financial Stability Oversight Council, empowered it to consider, in addition to a company’s leverage, size and exposure, “any other risk-related factors the council deems appropriate.”
Bear Stearns Precedent
What might those factors be? Given what has already happened, it could be anything at all. And when it comes to determining whom to lend money to, suffice it to say that if we can lend to Bear Stearns and AIG at ridiculously low interest rates, we can lend to me.
Sure, I’ve been paying my bills lately, but given the line of cut-rate credit waiting for me at the discount window should I need it, my creditors are rightly worried that I might stop payment at any moment.
Once I have access to the Fed, I will borrow at close to zero percent interest and invest in longer-term Treasuries that pay a higher interest rate. A few hundred billion dollars of such transactions, and I’ll be looking at some nice profits.
And for that I say: Thanks, America!
We shouldn’t fight the spread of the Fed’s power in the New Year; we should embrace it, rejoice in it, even baste ourselves in it. Looking back at the past two years with the benefit of hindsight -- that phrase always makes people think the forthcoming observation must be wisdom-filled -- it becomes clear that policy makers have not been creative enough. The policy that could take this fledgling recovery and turn it into an unprecedented boom has eluded them.
But I’m here now.
Many of our leading financial institutions have been handed the same free cash I’m seeking, but they’re sitting on it, not making loans, slowly recapitalizing after incurring massive losses. So much for stimulus.
While I might seem small by contrast, I’m a better risk than many of the troubled institutions that have been playing this game. I have no huge losses to tie me down. Right here, right now, I promise that I will spend every penny of my multibillion-dollar windfall. Hello, new Bentley. Ready for a spin?
Why should you, dear reader, support me in my quest to achieve systemic importance?
Once our financial overseers realize how stimulative I become, they will want to share their largesse with you as well. Before long, we’ll all be important, and the free money that previously was limited to banks will be available to us all. How great is that?
In the old days, we had to work hard to make ends meet. If the broad new powers granted by Congress are used to declare me systemically important, those sweat-filled days will be gone forever. The path to your personal fortune will become no more laborious than the well-worn path to your refrigerator.
And for that I say: You’re welcome.
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain in the 2008 presidential election. The opinions expressed are his own.)
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