Tags: Fed | Johnson | Ahamed | 1930

Fed's Image Is Polished at GWU — Part I

By    |   Wednesday, 18 Dec 2013 06:52 AM

The George Washington University Business and Law Schools jointly sponsored a program on Dec. 13 to mark the 100th anniversary of the founding of the Federal Reserve System by launching a project to develop an online course in the history of the Fed.

This program was the first of four planned events, with the other three to be held outside of Washington. A series of panels explored various questions related to the future of the Fed and how its independence and accountability might be expected to evolve in the future.

The first panel, and in my view by far the best, was billed as an assessment of the Fed's leadership throughout its history, but it delved into the cultural influences that affected the performance of the Fed and what these suggest about the future.

Arthur Wilmarth, a professor of George Washington Law School and executive director of the school's Center for Law, Economics and Finance, one of the co-sponsors of the event, moderated a panel consisting of Liaquat Ahamed, author of the Pulitzer Prize-winning book, Lords of Finance: The Bankers Who Broke the World, and Simon Johnson, a professor at the Sloan School at MIT, former chief economist of the International Monetary Fund and author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.

Ahamed drew parallels between the boom times of the 1920s and the 2000s, both spawned by advances in technology, and he compared the Fed's responses in the two cases. In the 1930s, there was a conflict between the New York Fed and the Board of Governors in Washington, with the Board of Governors winning out in favor of ceasing the accommodation of the New York financial community, whereas in the recent circumstance, the Fed, under Ben Bernanke, who studied the Depression case, adopted a proactive stance and has maintained it for years.

Thus, Ahamed expressed a view supportive of the Fed's message, that by quick, decisive action, the Fed ameliorated the excesses of the bankers.

Johnson picked up where Ahamed left off, and he agreed that mistakes were made in the 1930s that were avoided in 2008, but he went straight to the issue of "legitimacy," because the matter doesn't stop with the bailouts. It raises ongoing questions of legitimacy, moral hazard and the role of the New York Fed.

Johnson is not sanguine regarding the highly touted public-private partnership that is being promoted as the basis for reforms post-2008. He pointed out that other industrialized countries have made their central banks governmental institutions. In the United States, the Fed remains a hybrid institution, and this raises the question of who decides who should be bailed out and the terms, who should be deemed illiquid and who should be deemed insolvent and who should be judged as responsible for panics and who should be treated as victims.

Referring to the meeting of the FDIC's Systemic Resolution Advisory Committee, he questioned whether the so-called Orderly Liquidation Authority would provide either order or liquidation. He warned that the regulatory authorities have much more power than they did in the 1930s and are subject to "cultural capture" by the banks.

(Archived video can be found here.)

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Robert-Feinberg
The George Washington University Business and Law Schools jointly sponsored a program on Dec. 13 to mark the 100th anniversary of the founding of the Federal Reserve System by launching a project to develop an online course in the history of the Fed.
Fed,Johnson,Ahamed,1930
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2013-52-18
Wednesday, 18 Dec 2013 06:52 AM
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