A Heroic Powell Restores Public Faith In The Fed
"This is huge news," someone on Bloomberg Television declared, as the network interrupted a live broadcast from a crowded container port to announce new restrictions on trading activity by Fed officials and staff.
For the better part of two months, Jerome Powell labored under the shadow of a mini-scandal precipitated by "revelations" that Robert Kaplan, Eric Rosengren and Richard Clarida all traded securities last year during the Fed’s unprecedented push to backstop the economy and financial
Jeez, do you think we could put some rules like this in place for members of Congress? (Just kidding!)
Not kidding, Congress, senior aides and staff, all government department heads and senior staff. Same rules for all.
No one will confuse Powell with a French aristocrat circa 1789, but, jeez, when it comes to all the people who could be Fed chair, we could do a lot worse.
There are plenty of important policy reforms that are of little interest to much of the general public. The single mom in a Chicago housing project probably doesn’t care whether current or former Goldman execs are the ones making money in the stock market. But she probably does hope that those in government are worrying more about the long term interests of the economy as a whole instead of their own short term financial gain. The problem is pervasive in government. We want our generals deciding what weapons the troops need, not thinking about where they will work upon retirement. Recent disclosures that over a hundred federal judges should have recused themselves from cases certainly surprised me. The concern is less about who and how much money is being made, and more about whose interests are being served. Powell’s reforms won’t save the world. But I think we are better off with them than without them. Personally, I would find it very frustrating to be constrained in my own investment activity by the rules he just imposed. (Although, sadly, I do wonder if I might have better returns if I didn’t buy individual stocks, and only bought when I knew I had to hold for one year.)
Whether any particular audience is or is not watching, it is the right thing to do and I’m pleased that Powell did it – and quite swiftly too.
I do think we can’t demand that Fed governors and staffers be sans real assets or securities portfolio. If a person is entrusted with the stability of the banking system and financial markets, and has the depth of real-world experience necessary to do the job, it would be quite odd for that person to be a stranger to either.
We also, in my view, also can’t demand that those persons convert their wealth to an asset class untouched by the Fed’s decisions, because there is no such thing.
I think the main thing we should expect is that they not trade based on material non-public information, or before public information has had a chance to become discounted in asset prices.
In principle, it might also be nice to require their portfolios to be highly diversified, rather than unduly concentrated in a specific asset class most influenced by whatever they are working on at the Fed. But that might be too difficult to administer.
In spite of the many (many, many, many) failings of American society, it is relatively free of corruption. We don’t expect to have to bribe someone to get a building permit. We may hate big banks, but we don’t expect them to skim from our checking accounts. Actions like Powell’s are necessary to keep our system (relatively) clean.
“We may hate big banks, but we don’t expect them to skim from our checking accounts”
Wells Fargo on line 1 for you 🙂
I don’t know what government you are referring to, but the US government and its state and local governments are absolutely corrupt. I lived in Iowa for 35 years. During that time Chuck Grassley was my congressperson and then my senator. While he has been in Congress he has been he recipient of millions in government aid for his farm. A truly good citizen would eschew such aide knowing that he wields significant power over the passage of legislation dispensing all this money. But he’s right there in line getting his “fair share.” Almost everyone in the Congress is a multi-millionaire, including Bernie Sanders. Given what they earn how did they accumulate so many millions? And Trump? Seriously?
The single mom doesn’t care about Powell trading stocks that he’s also using Fed policy to purchase but she does care about the rising cost of groceries. While she may or may not be able to connect the relationship between the Fed chairs buying stocks while simultaneously keeping QE going during “transitory” inflation. She certainly would be pissed off to learn that the Fed chair put his short term financial gain over her longer term ability to afford goods and services necessary for her family’s survival. While we don’t KNOW yet whether or not the Fed could have had an inkling that this transitory language was BS, it’s now painfully obvious that they waited way too long to taper QE and now have us on a crash course for another Stagflation type event.
What is becoming painfully clear to me about United States government is that it has been designed to be a place where corruption is not only possible but welcomed. Judges trading securities on cases they are adjudicating? Senators buying and selling stocks based on policy they set or information they get ahead of the public? The Fed chairs buying securities that they know their policies are buoying? All of this is just the tip of the iceberg on how easily corruptible anyone can be. If you work for a financial firm and have access to trading platforms or insider information, there are very strict guidelines about what you can trade and when. The irony to me is that a person who can look at a Bloomberg terminal has far less of an advantage than a a Congressmen who gets advanced information on a government shutdown and can liquidate his assets before everyone else. It’s completely backwards. This current time definitely has parallels with the Gilded age for me, throw in the weaponization of misinformation and that’s a pretty nasty cocktail we’ve got going on.
Give powell a break. He is not the son of god. He is human and is trying hard. Given his background in law and investment banking he is not going to be a social progressive. But he is a (reasonably) competent public servant. Same comment about Biden, although Joe is a bit more sympathetic/empathetic to an average person. A sign of political maturity for the electorate is to realize you are hoping the people running the show are good. But also to realize nobody is perfect. And even the really good ones make mistakes and make reasonable decisions which may not work out.
Amen. Well said.
the FED staff will be compensated by increased salaries and guaranteed benefits for being barred to trade securities, not necessarily a bad trade off…