SALON

Tuesday, Oct 21, 2008 5:26 PM UTC

As Greenspan plummets, Volcker surges

If you could trade shares in Fed chairmen, it's time to sell the Maestro. As for Bernanke? Every week, it's a different story.

By

Topics: Globalization, How the World Works, Ben Bernanke, Paul Volcker, Alan Greenspan,

One of the lessons of this year’s economic crisis is that the reputations of Federal Reserve chairmen are not written in stone the day they step down from their office. Alan Greenspan, lauded hither and yon as the Maestro, looks worse and worse each day, as we watch his Ayn Rand-influenced philosophy of deregulation unmasked by Wall Street’s folly. In contrast, his predecessor, Paul Volcker, looks better and better. As a Wall Street Journal article reporting on how Volcker has become one of Barack Obama’s top economic advisors notes, “his gruff warnings about the risks of deregulating the financial sector have come to look prescient.”

So it’s safe to say that we’ve got a very long way to go before we can close the book on Ben Bernanke’s legacy. But when that book does get written, I can guess at least one sentence that will be included in the text: Ben Bernanke did not stand around doing nothing while the global financial system crumbled. He was a busy, busy bee.

On Tuesday, the Federal Reserve announced yet another initiative aimed at unsticking the credit markets — the Money Market Investor Funding Facility (MMIFF) — “which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.”

From the Financial Times:

The Federal Reserve on Tuesday said it would finance up to $540 billion in purchases of short-term debt from money market mutual funds, in its latest move to shore up the bedrock of the U.S. financial system.

The U.S. central bank will lend money to five special purpose vehicles, which will be managed by JPMorgan Chase and tasked with purchasing certificates of deposit, bank notes and commercial paper with three-month maturities or less from highly-rated institutions.

The new lending facility comes at the same time as evidence continues to pour in that credit markets are responding aggressively to the various rescue plans orchestrated by the Fed, the Treasury and foreign governments. By one measure, reports Bloomberg, the interest rate that banks charge each other for loans has fallen “to the lowest level since Sept. 12, the Friday before Lehman failed.” Also possibly worth noting: The Federal Reserve defends the creation of the MMIFF by stating that “short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs.”

But the Financial Times also reports that last week, money market funds recorded the largest weekly inflow of funds — $44 billion — since 2001. That doesn’t yet make up for the $200 billion outflow money market funds registered in September, but does seem to indicate a healthier climate, overall, for money market funds.

Is the Fed taking this new step because it is worried that the recent improvement in credit markets is too fragile? Or is this a case of overkill? I don’t know the answer to that, but I do think that Bernanke will not be criticized by future economic historians for doing too little to keep financial markets liquid.

One last note: According to the Financial Times, the new special-purpose vehicles set up to buy money market fund CDs and other commercial paper will be managed by JPMorgan Chase, a bank that has emerged throughout this year of troubles as the U.S. government’s right-hand man for troubleshooting. JPMorgan took over Bear-Stearns at the federal government’s request, and then, under strong pressure from regulators, swallowed up Washington Mutual. Now it’s “administering” another half-trillion-dollar lending facility.

JPMorgan’s CEO, Jamie Dimon, has been rumored as a possible choice for Treasury secretary in an Obama administration. Could be a smart pick, if only because Dimon would take office with an intimate grounding in exactly how the federal government has already chosen to address the financial crisis.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 11 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

From Around the Web

Presented by Scribol
listener_new_rect The Listener: Chekhov's story mirrors Russia's own

Recommendations