Dallas Fedhead Fisher: Blame the New Depression on Goldman Sachs, Pray, and Keep an Eye on Those Financial Bloggers

"Every age has its peculiar folly—some scheme, project or phantasy [sic] into which it plunges, spurred on either by the love of gain, the necessity of excitement, or the mere force of imitation."

"Men, it has been well said, think in herds; it will be seen that they go mad in herds...."

-Memoirs of Extraordinary Popular Delusions, -Charles Mackay (1841)

and yes, I totally stole that from RF's speech... thanks, homie!

I've got to give it to Federal Reserve Bank of Dallas President Richard Fisher, the dude has jokes. Not only that but he's got a light-hearted take on the financial crisis that in many ways makes a whole hell of a lot of sense. I think in reading this speech he has just surpassed Philadelphia Fed's Chuck Plosser as my 2nd favorite Fedhead. Who doesn't love an inflation hawk? You, sir, are no Jeffrey Lacker but you will certainly do in a pinch. Rumor is that Skeptical CPA has alternate thoughts on Dallas Fed's fearless leader which he shall reveal in due time; I don't know about you but I'm anxiously awaiting his take.

Fisher begins his speech before the Washington Association of Money Managers last Thursday with the parable of the Presbyterian pastor. You have to forgive him, he's from Texas and we all know how religious those guys are. Besides, since we have long thrown logic out of the window in the face of total economic meltdown, maybe all we have left is divine intervention? Lord knows we're going to need a miracle if we as a country are going to get out of this in one piece:

This generous pastor took pity upon the man. He took him to a barber for a shave and a haircut and to a store for a pair of shoes, a shirt, a tie and a new suit. The pastor then dropped the man back at the shelter, handed him $20 and told him, "Son, you have been saved. My church is just one block away from here. I want you to come to my church on Sunday and praise the Lord."

Sunday came but the man did not. So immediately after the service, the pastor went to the shelter. There was the man, sitting in a rocking chair, all dressed up and beautifully groomed, reading a newspaper. "Son, I had asked you to come to my church this morning to give testimony to having been saved. Where were you?" asked the pastor.

"Pastor," the man replied, "I surely did go to church. I woke up this morning, shaved my whiskers, combed my hair, put on this beautiful shirt and tie you bought me and dressed in this new suit. I put on these fancy new shoes. When I looked in the mirror, I felt like a millionaire. So I used the $20 to take a cab to the Episcopal church."
Well what does he mean? Sorry but no central banker decoder ring needed for this one (don't worry, I'll pull it out in a minute).

Fisher continues:

I certainly don't need to tell a room full of Washington money managers what got the nation into its current economic situation. A sudden new set of circumstances, easy money seemingly heaven-sent and the short-sighted suspension of time-tested, prudent financial practice led us on the road, not to salvation, but to economic perdition.

The new set of circumstances included the economic and financial windfalls that came from at least two major structural changes. The first was the end of the Cold War and the commercial reorientation of China, Vietnam, India and Eastern Europe, which unleashed enormous new capacity for the increased production of goods and services, held down costs and restructured the global economic map. The second was the explosion of computational power and communication ease that came from technological advancement and the Internet, facilitating globalization and leapfrogging frontiers that formerly separated the economic landscape. The world was our oyster. It simultaneously gave us new consumers and suppliers. It provided new sources of funds as well as new places to invest.

Here I disagree with RF (sorry, dude, you lost me...) in that it wasn't the development of the world outside of our borders that encouraged such short-sighted debt-mongering here in America. It was, in fact, our very own Federal Reserve which egged us on. Homicidal maniac Alan Greenspan ring a bell to anyone?

Let me give you an example from my own life, shall I?

From the day I turned 18, I was born into a life of debt. Some 10 years later, I'm still drowning and certainly my Gen Y counterparts can sympathize. Entire networks of 18 - 35 year olds overwhelmed by their obligations are everywhere you look in the obviousness of the blogosphere - Smart Cookie to Be (a CPA exam candidate studying with my company) is a perfect example. I don't talk much about debt because, well, who wants to discuss such things?

They sold us off before the ink had even dried on our high school diplomas. In 1999, at 18 years old, I was overwhelmed by the prospects of easy money to fund my adventures from Wisconsin to California. Guess what? I'm still paying for it a decade later.

Easy money may well have been encouraged by central banks that held interest rates too low for too long. But it was exacerbated by lenders, investors and consumers who—keen on enhancing returns that seemed pedestrian with a flat yield curve anchored by low, risk-free rates—"craved" and "devoured" new risk instruments, to paraphrase Bagehot. As a result, they came up with new "schemes" and "projects" and "phantasies" made more enticing by expanded markets and financial innovation.

Short-sightedness was manifest in the abandonment of prudential practices. For the banker and lender, the time-tested principle of "know your customer" took a back seat to the mad rush to package and sell exposure to others. For the consumer, "living within your means" became a less compelling discipline in a world where a house was not just a home but a means to financial gain. For the investor, prudence took on another dimension with the presumed ability to mathematize judgment and hedge away the risk of default.

Yeah, RF? How in the high holy hell were we supposed to know that? In hindsight and with 10 years under my belt, I see now that the prudent route would have been the wise one but how in the hell do you expect an 18 year old girl to get that? Really?!

By 24, I found myself bogged down with a 2 year old, a shiny new Nissan ($23,000!), a laptop ($1800!) and the ghosts of debt past - cell phones, credit cards, Capital One offers, student loans, you fucking name it. Where was the Fed then? Jerking us off trying to get us to bite on even more "easy money." Sorry, bitches, but I know better. While the quants were "mathematizing" my risk, I was off busting my ass just to make my monthly payments.

And even then the offers kept pouring in. Wells Fargo extended us $2500. Bank of America another $5000. What the fuck! We were already $35,000 in the hole! Who cares! Keynesians believed in the delusion of growth and knew they had the growth of China and the end of the Cold War to blame it on when/if the house of cards crumbled, so who cared?

I will give Richard Fisher this much: he, like his counterpart at the Richmond Fed, doesn't skew the issue like the rest of the central banking crew. It takes a little cleverness to get through any central banker babble but it is easily digestible for the rest of us commonfolk who do not count "central banker parlance" amongst our linguistic expertise.

And yet, while the world had indeed changed, the behavioral pathology documented by Mackay and Bagehot in the 19th century—a pathology based on their studies of countless debacles through history—prevailed. A "plethora" of commercial and financial opportunity begat "speculative" excess that inevitably begat a "panic." The thundering "herd," spurred on by "the love of gain, the necessity of excitement or mere force of imitation" and "mad" with irrational exuberance for the upside, suddenly realized in 2008 it had "devoured" more risk than it could stomach and panicked. The financial system seized up and the economy descended into recession.

Seized up like a crackhead sucking down his last rock, right, Richard Fisher? And who oh who created that? I cannot reasonably point the finger at Fisher's Dallas Fed. But did any of those who count themselves on the Fed's payroll consider the impact their easy money policy of yore would have on the ignorant and, frankly, entirely fucking stupid contingent of Americans who bought into said policy?

We are your reality, Richard Fisher. We are broke and oh-so-unfabulous. Raised on Reaganomics, how could we have known better?

Can we fully blame the Federal Reserve for our own stupidity? Probably. But that doesn't make our current situation any easier to digest.

Richard Fisher gets the Jr Deputy Accountant stamp of approval, second only to Richmond's Jeffrey Lacker (barely...). If only the rest of them were so realistic about this fucking mess we've got oozing in our hands...

So? You Fed fuckers made this mess, now what are you going to do to get us out of it?!

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


I read Mackay's book about 30 years ago. It's worth reading. "Who doesn't love an inflation hawk?", you write. I quote one of my favorite monetary experts and fellow Austrian, the infamous Mogambo Guru, "Hahahahahaha".
Unlike RF, I don't blame banks, consumers, or investors for our current predicament. Each responded to the incentives it had. I lay responsibility for our mess with: the Fed and Uncle Sam.
"Keynesians believed in the delusion of growth and knew that they had the growth of China and the end of the Cold War to blame it on when/if the house of cards crumbled, so who cared?", you write. When you get a chance, force you way through Keynes 365-page "Opus Magnus", his General Theory, 1936. It's a pile of obfuscation and recycling of discredited mercantilist theories. I doubt "smart" Keynesians, like say Paul Krugman believe a word of it. If you haven't, follow the Krugman-Ferguson dust up. Yves Smith has done a fine job on this. As ususal.
You write, "You Fed fuckers made this mess, now what are you going to do to get us out of it?!". There is nothing the Fed can do, except make things worse.


It makes sense that the Mogambo Guru is always cackling diabolically - slogging through these speeches day in and day out is causing the same reaction in me.

You, as usual, are 100% correct.

I will do my best to get through some of Keynes' work.

It's akin to the Fed reading "Creature from Jekyll Island" anyway, right? What better way to understand the enemy than to comb through their own handbook...