'Could we have risked the failure of Bear Stearns?'

Volcker: Fed’s ‘Extreme’ Intervention ‘Raises Some Real Questions’


An older interview talking about the UN oil for food corruption scandal.

Confused about 'Syntax Destruction'

"I know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant,"- Greenspan

Imperfect Central Bank Communication - Information versus Distraction

Summary: Much of the information communicated by central banks is noisy or imperfect. This paper considers the potential benefits and limitations of central bank communications in a model of imperfect knowledge and learning. It is shown that the value of communicating imperfect information is ambiguous. There is a risk that the central bank can distract the public; this means that the central bank may prefer to focus its communication policies on the information it knows most about. Indeed, conveying more certain information may improve the public's understanding to the extent that it "crowds out" a role for communicating imperfect information.

Under-appreciated Economists

In his best-selling memoir, The Age of Turbulence (Penguin Press, 2007), Alan Greenspan singled out David J. Stockton, head researcher at the Fed since 2000. “He never sought nor received the press that Fed governors get, but when the governors gave speeches, it was his forecast of the U.S. economy that Fed watchers were getting. We governors learned to see him as the indispensable, behind-the-scenes staffer”(p. 250).

via Teaching Economist

Mervyn King Quotes

• Jan. 22, 2008: "Northern Rock … is not the epicenter of the present global banking crisis. That lies in the very substantial losses made by many banks … as a result of the collapse of the U.S. sub-prime mortgage market." "After a decade and more of non-inflationary consistently expansionary (nice) economy, a phrase I coined in 2003, we move to a somewhat bumpier but still rather stable path … the not-so-bad period. You might think we have now entered a not-so-good period … a period of above-target inflation and a marked slowing in growth."

• Nov. 6, 2007: "The role of the Bank of England is not to do what banks ask us to do; it's to do what's in the interest of the country as a whole."

• Sept. 12, 2007: "The provision of large liquidity facilities penalizes those financial institutions that sat out the dance, encourages herd behavior and increases the intensity of future crises."

• Aug. 8, 2007: "Interest rates aren't a policy instrument to protect unwise lenders from the consequences of their unwise decisions."

• June 20, 2007: "Be cautious about how much you lend, especially when you know rather little about the activities of the borrower. It may say champagne - AAA - on the label of an increasing number of structured credit instruments. But by the time investors get to what's left in the bottle, it could taste rather flat."

• June 20, 2007: "Excessive leverage is the common theme of many financial crises of the past. Are we really so much cleverer than the financiers of the past?"

• Dec. 1, 1998 : "A successful monetary policy should be boring...successful central bankers should be seen neither as heroes nor villains, but simply as competent referees, allowing the game to flow and staying out of the limelight."

• Jan. 1, 1997: "An 'inflation nutter' (is) a governor who places weight only on inflation and none at all" on other variables, including economic performance.

-Bank of England Chief Changes Tack in Crisis

Related;
Chief Economists' Workshop: Policy Challenges to Monetary Theory

Workshop on New Developments in Monetary Policy in Emerging Economies

Of Nutters and Doves

What would Greenspan say

“It is important that the Federal Reserve not follow a flawed strategy. I fear that with a reduction of 75 basis points or even 100 basis points today, which as you know a number of people are suggesting, stock prices could still fall, leading too many observers to conclude that monetary policy is ineffective. This is a potentially dangerous view in my mind especially among the broad array of those who do not participate in the equity markets. If we do 50 basis points and stock prices fall further, as they well might today, it is the central bankers who may be perceived as intellectually inadequate, not policy itself. This is far less dangerous to the economy!”

- Greenspan in 2001

A reality check on the role of central banks