Joseph Stiglitz weighs in on the Federal Reserve

March 4, 2010 | By | 1 Reply More

Joseph Stiglitz is one of the greatest economists in the world. He’s held professorships at Yale, Stanford, Duke, Princeton and Oxford Universities, and now teaches at Columbia University. He was the chair of the president’s Council of Economic Advisors under Clinton. He served as Senior Vice President and Chief Economist at the World Bank from 1997 to 2000. He was awarded the Nobel Prize in Economics in 2001. There should be no disputing that he is eminently qualified in the field of economics, which is all the more reason for you to pay attention to what he says about the Federal Reserve.

Speaking at a conference held by the Roosevelt Institute, he said that if a country had come to the World Bank under his tenure seeking aid, while maintaining a financial regulatory system like the Federal Reserve, it would have raised very big alarms:

“If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure,” Stiglitz said during a conference on financial reform in New York. “It’s time for us to reflect on our own structure today, and to say there are parts that can be improved.”

Joseph Stiglitz - Image via Wikipedia (commons)

Joseph Stiglitz - Image via Wikipedia (commons)

He also has a history of stating the obvious:

The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”

The Roosevelt Institute has also released a report starring other heavy hitters (Elizabeth Warren, Simon Johnson, et al)  who are extremely critical of the steps taken so far to reform the financial sector.

The report warns that the country is now immersed in a “doomsday cycle” wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

“Risk-taking at banks,” the report cautions, “will soon be larger than ever.”

The study says that “In 2008-09, we came remarkably close to another Great Depression. Next time we may not be so ‘lucky.’ The threat of the doomsday cycle remains strong and growing,” they say. “What will happen when the next shock hits? We may be nearing the stage where the answer will be – just as it was in the Great Depression – a calamitous global collapse.”

The whole report, entitled “Make Markets Be Markets”, is available here.   The second page of the report features this time-traveling quotation from FDR:

FDR’s Nomination Address, 1932
These are unprecedented and unusual times. . . the failure to solve our troubles may degenerate into unreasoning radicalism. . . Wild radicalism has made few converts, and the greatest tribute that I can pay to my countrymen is that in these days of crushing want there persists an orderly and hopeful spirit on the part of millions of our people who have suffered so much. To fail to offer them a new chance is not only to betray their hopes but to misunderstand their patience. To meet by reaction that danger of radicalism is to invite disaster. Reaction is no barrier to the radical. It is a challenge, a provocation. The way to meet that danger is to offer a workable program  of reconstruction. . . This, and this only, is a proper protection against blind reaction on the one hand and an improvised, hit-or-miss, irresponsible opportunism on the other. There are two ways of viewing the Government’s duty in matters affecting economic and social life. The first sees to it that a favored few are helped and hopes that some of their prosperity will leak through, sift through, to labor, to the farmer, to the small businessman. . . This is no time for fear, for reaction or for timidity. . . Now it is inevitable – and the choice is that of the times – that the main issue should revolve about the clear fact of our economic condition. . . Let us look a little at the recent history and the simple economics, the kind of economics that you and I and the average man and woman talk. . . Enormous corporate surpluses piled up – the most  stupendous in history. Where, under the spell of delirious speculation, did those surpluses go?. . . They went chiefly into the call money market of Wall Street, either directly by the corporations, or indirectly through the banks. Those are the facts. Why blink at them? Then came the crash. You know the story. . . purchasing power dried  up; banks became frightened. . .

Sounds astoundingly similar to recent events. As George Santayana said, “Those who cannot learn from history are doomed to repeat it.”

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Category: Current Events, Economy, History

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is a full-time wage slave and part-time philosopher, writing and living just outside Omaha with his lovely wife and two feline roommates.

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  1. Erich Vieth says:

    The White House is fighting for the secrecy of the Federal Reserve. http://www.huffingtonpost.com/2010/05/03/rahm-wor

    This new resistance to audit by the Fed makes me all the hungrier to see an audit of the fed. http://www.huffingtonpost.com/2010/05/04/fed-priv

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