Former Reagan Official David Stockman: Washington Has Raised Risk of Another Financial Crisis

Tuesday, 12 Aug 2014 08:00 AM

By Dan Weil

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In theory, our government has been hard at work for the past few years to prevent another financial crisis, says former White House budget director David Stockman.

But in practice, things look quite different, he writes on his Contra Corner website.

"Practically since the day Lehman went down in September 2008, Washington has been conducting a monumental farce," Stockman argues.

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"It has been pretending to uncover the causes of the thundering financial crisis and to enact measures insuring that it would never happen again. In fact, however, official policy has done just the opposite."

For quite some time, Stockman has been criticizing the Federal Reserve's massive easing campaign that has kept the federal funds rate at a record low of zero to 0.25 percent since December 2008.

Fed policy "has perpetuated and drastically enlarged the Wall Street casino, making the pre-crisis gamblers in CDOs [collateral debt obligations], CDS [credit default swaps] and other derivatives appear like pikers compared to the present momentum chasing madness," he notes.

Meanwhile, the Dodd-Frank financial reform law "has actually permitted the TBTF [too big to fail] banks to get even bigger and more dangerous."

"Making debt more expensive and permitting it to be economically priced on the free market is, in fact, just what is needed to eventually cure the nation's debt-ridden economic malaise."

As for the Fed, it must wait on boosting interest rates until the economy has rid itself of almost all excess capacity without triggering price pressures, says Washington Post columnist Robert Samuelson.

But the Fed also must be careful not to delay its move for too long, lest inflation run out of control, he writes.

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