Richmond Fedhead Lacker on Everything But Fed Audits (Mostly on Saving His Own Skin)
Zero Hedge does my favorite Fedhead and I couldn't stand by without saying anything. Wait for it.
(psst: Lacker isn't talking about an audit)
Racketeering 102: Fed's Lacker Threatens With Mutually Assured Destruction If Fed Audited (ZH):
The biggest problem with the Fed is its continuous insistence that the kleptocratic oligarchy always knows not only what is in everyone's best interest, but is so much smarter than all, that stupid peasants getting advance knowledge of just how impaired the major TBTF institutions are, would immediately risk bank runs. Once again, it never dawns upon these enlightened gentlemen, that such rumor-based "bank runs" are merely a byproduct of never having the sufficient information to make informed decisions about these very companies in real time. And when the shit does hit the fan (as it always eventually does under the Fed's "aegis") the outpouring of panic is enough to bring the system down in a matter of hours as September 18, 2008 demonstrated.
I disagree with ZH's assessment to some extent. It certainly dawns on them - some more than others - and it is Lacker's homebase of Richmond that seems more obsessed with the moral hazard problem than, say, those money-printing maniacs at SF Fed.
In particular, ZH takes issue with Lacker's statement yesterday to the Richmond Risk Management Association:
Some observers argue that the financial reform agenda should include changes in the role and governance of the Federal Reserve. One proposal would extend the GAO's authority to audit Fed operations to include monetary policy decisions. Other proposals would alter our governance structure by making Reserve Bank directors and/or presidents political appointees. I know it might sound self serving for a Fed insider to object to such changes, but I believe such moves would present very serious risks to the effectiveness of monetary policy and ultimately to economic growth and stability. Looking across time and across countries, there is abundant evidence that economic policy and macroeconomic performance are generally better when the central bank's monetary policy decisions are shielded from the political pressures of the moment. For an illustrative case, one need only look to the 1970s in the U.S., when political influence led to high and volatile inflation that disrupted economic growth. The governance of the Federal Reserve System balances accountability, with ultimate authority resting in Washington, and independence, with the participation of non-political leaders from throughout the country. While the performance of our economy in the last two years has clearly been unsatisfactory, and policy mistakes may have contributed to our problems, the Fed's balanced, hybrid governance structure has, I believe, given us a good record over the better part of three decades. Disrupting that balance would pose another long term challenge for our economy.
I hate to point this out to Zero Hedge (as we are, certainly, on the same team when it comes to many of these issues) but Lacker was not specifically referring to a Fed audit when he spoke of the potential threat for direct political intervention. He is discussing regional Fed Banks' largest threat in the months ahead; a change in structure and policy that could leave Fed governance decisions in the hands of Washington. No, not the Board, I mean that guy with a huge spending problem who lives on Pennsylvania Avenue.
And as I pointed out last week in Fed Independence: Raw, depending on how the economic doomsday scenario plays out in the months and years ahead, this could be an absolute disaster. Not just for Lacker who - like any poor shlub with a shitty but well-paid job - probably just wants to stay employed but for those of us who use, get paid in, invest in and spend dollars.
The system is not perfect. But alternative means the President could be planting minions all over the FOMC and I should not have to explain to dear reader why this might turn out to be a dangerous situation.
Anyway, just because Lacker mentions an audit doesn't mean that's at all what he's talking about. Trust me on this one. He's talking about saving his own ass because let's face it, if Fed governance were in the hands of Congress or the President, there's no way a hard-ass thorn in the FOMC's side like Lacker would have ever ended up heading up a Fed bank. Think 12 Janet Yellens, each more frightening than the last, with titanium arms for all that manic money-printing, chirping "more asset purchases!" in unison at each and every meeting.
I share your outrage, ZH, but you got this wrong. It's his ass, not the Fed's ass that he cares about. At least for this one. I doubt the thought of a Fed audit keeps him up at night, he isn't the one who has any sins to confess.
Now call me crazy (it's cool) but I think "worry about this" might just be written into Lacker's calendar for at least half the year ahead. A Fed audit? Pfft, let the rats at NY Fed worry about that, they are the ones who screwed up and engineered the whole AIG bailout.
Granted, Lacker is delusional about the "balance" of the Fed's governance structure but it beats the living hell out of having POTUS running the press. Just sayin.
Market Ticker is also on this and he too got Lacker's statement wrong. Oh well.