Islam is the only religion not to have experienced a reformation. Many of us have suffered as a result. The Fed was the only major central bank not to have experienced a complete reformation. We all suffered as a result.
Chairman Bernanke’s recent decision to hold four press conferences following FOMC meetings signals that a central bank still clinging by a finger to the dark ages has finally relinquished that hold.
The story of reformation begins Oct/19/1993 with three of us before the House Banking Committee. We had been called as witnesses to explain the damage done to markets and taxpayers through the Greenspan Fed’s lack of transparency and lack of accountability. My presentation addressed three concerns - communication of policy change, Fed leaks, and reckless inter-meeting commentary from bank presidents and governors (something which Andrew Brimmer, former Fed gov, called an “open-mouthed practice which must be stopped.”)
Greenspan’s practice was never to announce a policy change; it had to be guessed by watching Fed numbers. This provided work for “Fed watchers” but served no other purpose aside from sparking great confusion. Sometimes Greenspan himself would leak the change to one of two WSJ reporters (an act which would have the rest of us taking our meals through a slot). We scolded one of these for cooperating. “I’ve got to feed my kids,” he responded.
Convoluted policy communication, outright leaks and careless media stunts from Fed members often resulted in violence in US markets, sometimes much higher yields on Treasury debt than would be otherwise. We taxpayers picked up the tab.
All the Fed presidents and governors were there that October day. They had our concerns up front so a few days earlier Greenspan held a practice session on a conference call as to how to best beat the rap. Indeed, each of the fifteen parroted the other, all in unison that we were wrong. Instead, they were wrong.
It did not hurt that I had Milton Friedman’s endorsement along the way. Then after the hearing we circulated a petition among street economists and academics. That received wide press coverage. This, coupled with Congressional pressure, effected the desired result. In early 1994 the Fed decided to announce policy change same day; that formalized Feb/95. The markets took this in stride, exactly as we predicted. The leaks also stopped. So did the reckless commentary.
And ground zero, the heart of darkness at the Greenspan Fed? Simply an economist’s horror at being found out, at not wanting to be cornered.
As a private economist Greenspan’s record as a forecaster was awful, “the worst” as Worth mag put it. He was a mortal; he simply did not want the rest of us to find out (a malady effecting many other policy makers). This is why at the hearing he denied there were any tapes available of past deliberations. This proved to be false.
And that is why he felt he had to be slippery when policy was changed. More than once colleagues reported Greenspan as “depressed” because markets reacted to policy change differently than he had predicted. But if the process of discovery was protracted, a cushion was provided along with an escape from accountability.
We have always praised Bernanke for his intellectual honesty. His recent change in procedure is proof we were right.
Robert Craven
Chairman Bernanke’s recent decision to hold four press conferences following FOMC meetings signals that a central bank still clinging by a finger to the dark ages has finally relinquished that hold.
The story of reformation begins Oct/19/1993 with three of us before the House Banking Committee. We had been called as witnesses to explain the damage done to markets and taxpayers through the Greenspan Fed’s lack of transparency and lack of accountability. My presentation addressed three concerns - communication of policy change, Fed leaks, and reckless inter-meeting commentary from bank presidents and governors (something which Andrew Brimmer, former Fed gov, called an “open-mouthed practice which must be stopped.”)
Greenspan’s practice was never to announce a policy change; it had to be guessed by watching Fed numbers. This provided work for “Fed watchers” but served no other purpose aside from sparking great confusion. Sometimes Greenspan himself would leak the change to one of two WSJ reporters (an act which would have the rest of us taking our meals through a slot). We scolded one of these for cooperating. “I’ve got to feed my kids,” he responded.
Convoluted policy communication, outright leaks and careless media stunts from Fed members often resulted in violence in US markets, sometimes much higher yields on Treasury debt than would be otherwise. We taxpayers picked up the tab.
All the Fed presidents and governors were there that October day. They had our concerns up front so a few days earlier Greenspan held a practice session on a conference call as to how to best beat the rap. Indeed, each of the fifteen parroted the other, all in unison that we were wrong. Instead, they were wrong.
It did not hurt that I had Milton Friedman’s endorsement along the way. Then after the hearing we circulated a petition among street economists and academics. That received wide press coverage. This, coupled with Congressional pressure, effected the desired result. In early 1994 the Fed decided to announce policy change same day; that formalized Feb/95. The markets took this in stride, exactly as we predicted. The leaks also stopped. So did the reckless commentary.
And ground zero, the heart of darkness at the Greenspan Fed? Simply an economist’s horror at being found out, at not wanting to be cornered.
As a private economist Greenspan’s record as a forecaster was awful, “the worst” as Worth mag put it. He was a mortal; he simply did not want the rest of us to find out (a malady effecting many other policy makers). This is why at the hearing he denied there were any tapes available of past deliberations. This proved to be false.
And that is why he felt he had to be slippery when policy was changed. More than once colleagues reported Greenspan as “depressed” because markets reacted to policy change differently than he had predicted. But if the process of discovery was protracted, a cushion was provided along with an escape from accountability.
We have always praised Bernanke for his intellectual honesty. His recent change in procedure is proof we were right.
Robert Craven
No comments:
Post a Comment