That orientation allowed the executive branch and Congress to engage in pork-oriented economic policy, resulting in industrial policy by default that bloated preferred sectors like the military industrial complex, the medical industry, higher education, real estate, and finance.
Can’t be choosing winners and losers, national interest be damned. That was in tune with the widespread acceptance of neoliberal views of minimizing not just oversight and regulation but also overt microeconomic policy. The ultimate reason the Fed did something so dopey as to put through aggressive rate hikes despite obvious bank and financial system exposure was central bank mission creep, of taking up the mantle of economy-minder-in-chief. Yet the close-to-complete backstop of uninsured deposits amounted to another massive extension of the bank safety net. So many uninsured depositors remained in freakout mode, not understanding how the facilities work.
#DUDLEYS ON SHORT MENU FULL#
For instance, US authorities have put in place what is very close to a full backstop of uninsured deposits (with ironically a first failer, First Republic, with its deviant muni-bond-heavy balance sheet falling between the cracks). What Goes Around Comes Around March 19, 2023Īs we’ll explain in due course, the regulators’ habitual “bailout now, think about what if anything to do about taxpayer/systemic protection later” is the worst imaginable response to this mess. From CNN:Īnd even mainstream media outlets are fingering the Fed:Īfter SVB collapse, almost 190 new banks could fail, says new study ~ should be an interesting week. 1 Here we are, in less than two weeks, at close to the same level of bank failures as in the 2007-2008 financial crisis. What is happening now is the worst sort of policy meets supervisory failure, of not anticipating that the rapid rate increases would break some banks. The dislocations are proving to be worse than investors anticipated, apparently due to some banks having long-standing risk management and other weaknesses further stressed, and other banks that should have been able to navigate interest rate increases revealing themselves to be managed by monkeys. The great unwashed public and even wrongly-positioned members of the capitalist classes are suffering the consequences of Fed and other central banks being too fast out of the gate in unwinding years of asset-price goosing policies, namely QE and super low interest rates.
The incompetence of our financial regulators, most of all the Fed, is breathtaking.
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