Central banking in the 21 century
Recently Bloomberg posted this witty story (see below) about new standards of central bankign adopted by Fed. I laughed-cried, when I read it. But once you think it over, it becomes scary. Enjoy.
Commentary by Michael Lewis
April 13 (Bloomberg) — Last week the Federal Reserve
bravely released 894 PDF files containing 29,346 pages that
detailed its heroic actions during the financial crisis.
These documents revealed how open-minded the Fed can be
when it needs to be. Local governments in Belgium, Japanese
fishing cooperatives, the Libyan government and many other
unlikely parties received the Fed’s financial aid. Failing U.S.
banks, such as Citigroup and Morgan Stanley, were of course
handed whatever they wanted, and permitted to post as collateral
pretty much anything they could get their hands on: junk bonds,
defaulted debt, volatile equities.
To naive critics this came as just more evidence that the
Fed had mistaken the wants of a handful of rich people for the
needs of the wider society.
Many Fed spokesmen have wisely declined to comment, many
Upon seeing how incapable the public is of understanding
its wisdom, the Fed judiciously elected to withhold a second,
far longer document. This previously unexamined collection of
10,427 encrypted PDF files should no doubt offer not merely a
record of financial heroism, but a snapshot of peerless
financial leadership during a crisis.
Unfortunately, it won’t.
“We decided not to release any more details,” said one
Fed spokesman, “because frankly, the American public is too
stupid to understand them.” Instead, to prevent another pesky
Freedom of Information Act request of the sort that led to its
first brave disclosure, the Fed has offered physical access to
A team of Bloomberg investigative reporters, led by Kram
Namttip, was allowed to spend a day examining what remains of
the collateral collected by the Fed during the crisis. What
follows is a brief summary of their findings. To wit:
– A vault in the Fed basement filled with young women, who
claimed, in broken but excited English, they had been repo-ed by
the Italian government.
If Italy has weathered Europe’s sovereign debt crisis so
much better than its fellow deadbeats, here is why: the Fed’s
nervy decision to extend credit to the Italian government
against its prime minister’s social assets.
“That the Fed relaxed its policy and made no distinction
between the 16-year-olds and the 18-year-olds indicated just how
severe they felt the crisis was at the time,” says Merkle
Stewart, associate professor of finance at the University of
Louisiana at Bogalusa.
“Then again, they may have calculated that as the girls
came of age, their value might actually rise, with less risk, at
least outside of Italy.” A Fed spokesman declined to comment,
except to say, “They told us they were 18.”
– Traces of a powdery substance belonging to the giant
Mexican international commodities firm, Los Zetas.
Wisely, the Fed understood by late 2008 that the last thing
that U.S. banks needed was a crisis on the southern border. To
preserve order, and to prevent losses at JPMorgan, the Fed
stepped in to create demand for Mexican exports. To its credit
the Fed didn’t take the value of the Mexican corporate
collateral on faith.
“At the peak of the crisis the chairman tested the
collateral personally,” says a Fed spokesman. “I remember him
coming out of the men’s room late one night with this huge grin
and his eyes open really wide, and whooping it up to anyone who
would listen, “Whoa! That’s some seriously good sugar!”
– A box of brightly colored beads labeled “If Found,
Return to Ivory Coast.” “No idea what that’s about,” said the
– A snatch from an early draft of what appears to be a
lurid poem, written in German. A rough translation:
Your savings rate so arouses me/
Your exports taste like honey.
I would beg to lend you money.
In an official statement the Fed explained that the
quatrain was inspired by a surprising request from a German
bank, the Bayerische Landesbank, for a $500 million loan. “The
chairman is disturbed that his private moments should be deemed
of public interest,” read the statement. “He nevertheless
considers this among his finer works. I mean, that this bank
from a seriously solvent country thought to borrow from us
instead of from the German government. Like, they could have
gone anywhere. He just wanted to show how he felt.”
– Hastily scrawled receipts for several hundred million
dollars in short-term loans to the Taliban.
To the untrained eye, it isn’t obvious how an outlaw sect
in a nation devoid of financial assets became systematically
important to U.S. interests. Apparently, in the heat of the
moment, the Fed saw the high quality of the Taliban’s
collateral, and jumped at the chance to get its hands on it.
“To challenge this difficult decision is very backward-
looking,” says the Fed spokesman. “Osama bin Laden’s value to
the U.S. government was so much greater than the loans we
extended against him that it more than made up for the worries
we had about the equities Morgan Stanley posted, or our doubts
about the teenage girls — not that we ever had any doubts about
When shown documents that suggested that the Federal
Reserve was actually an arm of the U.S. government, and thus in
no position to cut a deal to sell bin Laden to that government,
the Fed spokesman declined to comment.
That bin Laden slipped away and vanished his first night
inside the Fed’s vaults was, the spokesman claimed,
(Michael Lewis, most recently author of the best-selling
“The Big Short,” is a columnist for Bloomberg News. The
opinions expressed are his own.)