Fed Easing Is Better Than the Alternative
Remember Greg Smith, the Goldman Sachs employee who resigned from the firm last year via an op-ed in the New York Times? Smith endured Goldman's money-grubbing culture that ripped off clients for 12 years before he found religion.
Today's confessional comes from a gentleman named Andrew Huszar, a senior fellow at Rutgers Business School, who says he was summoned back to the Federal Reserve in 2009 to orchestrate the purchase of $1.25 trillion of mortgage bonds in 12 months.
Modesty isn't Huszar's strong suit. "Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history," he writes.
A "dream job," to be sure. But our QB is hesitant to run with the ball. He had "left the Fed out of frustration" in early 2008, having watched the central bank defer to Wall Street. "Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding."
We can debate whether the Fed should have gotten into the credit business, buying mortgage-backed securities to help housing, rather than sticking to its Treasuries-only policy, but Huszar's assertion that quantitative easing helped Wall Street at the expense of Main Street makes you wonder what he did at the Fed all those years before landing his dream job. With interest rates close to zero, the Fed had to rely on asset purchases to transmit monetary stimulus to Main Street. Yes, it went via Wall Street. Asset prices rise; people feel wealthier and spend more. Bernanke has said repeatedly that he saved the banks to save the financial system: to save Main Street, in other words, not to repay any kind of debt to bankers.
To support his view, Huszar cites Germany's finance minister, Wolfgang Schauble, who called the Fed's decision to pursue subsequent rounds of asset purchases "clueless."
"And I suppose if the Fed had followed the ECB's lead Main Street would have been better off?" asks Mike Darda, chief economist at MKM Partners in Stamford, Connecticut. "The euro zone has record unemployment after a double-dip recession" and just last week lowered its main refinancing rate to 0.25 percent. Meanwhile, the U.S. has had steady, if unspectacular, growth of 2 percent, largely the result of the Fed's monetary offset to tighter fiscal policy.
Our hero, shaken to his senses by Schauble's remarks, has had enough. "That was when I realized the Fed had lost any remaining ability to think independently from Wall Street," Huszar writes. "Demoralized, I returned to the private sector" -- where at least he could be on the receiving end of the Fed's largesse!
Here's some advice to the next person forced into servitude, be it in the public or private sector. Submit your resignation letter to your boss and go quietly, unless, of course, you want to attract attention and maybe get a juicy advance from a publisher.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)