On the plane ride back from the Booth Investment Management Conference in Chicago on Sunday, I read the great new book by veteran financial journalist Bethany McLean, Shaky Ground: The Strange Saga of the US Mortgage Giants. The book tells the story of Fannie Mae and Freddie Mac, the two massive GSEs (government sponsored enterprises) that buy, package, and sell pools of mortgage loans. It’s a fascinating, if distressing history. Unfortunately, because our government failed to do away with Fannie and Freddie during the 2008 financial crisis, that history is still unfolding.
Another week has brought yet another much-publicized call for the Federal Reserve to delay raising interest rates. Yesterday, the International Monetary Fund opined that the Fed should hold off on a rate hike until 2016.
Give me a break.
Apologies for the sporadic blogging of late. I’ve been travelling a fair amount and I also wrote a piece for CNBC.com on the Five Ways to Spot a Dead Company Walking.
Two important and closely connected events took place in the world of finance since my last post. First, former Fed chair Ben Bernanke announced that he was taking a job as an “advisor” at the massive hedge fund Citadel Group. Then the stock of Goldman Sachs hit $200 for the first time since January of 2008. You might not think these things are related, but to me, they’re inextricably linked–and extremely dispiriting.
More than half a century ago, President Eisenhower warned the nation about the burgeoning Military-Industrial Complex. That monstrous public-private hybrid now sucks up more than half of all discretionary spending. But these recent events prove that the Wall Street-Washington Complex might be even more dangerous.
Recently, I was subjected to the unpleasant experience of watching the press fawn over a bunch of self-satisfied celebrities who contribute little or nothing to society. No, I’m not talking about the interminable Oscars coverage this past week. I’m talking about the reaction to the Federal Reserve meeting minutes from the 2008 financial crisis, which were released two weeks ago.
In the popular press–even at the reliably liberal New York Times–it has become conventional wisdom that the biggest mistake of that era wasn’t bailing out the most corrupt and incompetent firms on Wall Street with billions of dollars in taxpayer money. The biggest mistake was not making the bailouts big enough.