Here’s a Triumvirate… And Here Are Three Stooges

By David Stockman  |  September 26, 2018

What I tell you three times is true.

– Lewis Carroll, The Hunting of the Snark (1876)

Monetary central planners are the center of the system today.

The Federal Reserve’s policymaking group raised the benchmark federal funds rate another 25 basis points, or 0.25%.

That brings the central bank’s key overnight interest rate up to 2% – and it’s still at the extreme low end of the long-term average. Markets already “priced in” this move.

So, today’s action is – theoretically – the sum of an incalculable number of decisions made by individuals, each pursuing their own best interest.

Well, it used to be a lot more like that.

But – and I repeat it, because it’s a big “but” – monetary central planners are the center of the system… not just today.

Every day.

That’s thanks to guys like Benjamin Bernanke, Henry Paulson, and Timothy Geithner.

Photo of Benjamin Bernanke, Henry Paulson, and Timothy Geithner

And, after all, they “saved” us during the Global Financial Crisis.

Bernanke was Chair of the Federal Reserve, the most powerful central banker in the world.

Paulson was Secretary of the Treasury of the United States, successor to Alexander Hamilton.

And Geithner was President of the Federal Reserve Bank of New York, the keystone of the Wall Street-Washington D.C. duopoly.

That was some light Bubblevision shone on them in observance of the 10th anniversary of September 2008.

The way things are going, we’ll soon celebrate this triumvirate with even loftier hosannas… certainly a monument or two… maybe even a high school in a hometown… perhaps even a portrait on a piece of paper currency.

We should remember, of course, that the Global Financial Crisis gave way to the Great Recession.

It brings to mind another trio…

Photo of Curly, Larry, and Moe aka 'The Three Stooges'

These Three Stooges might have at least provided straight-up slapstick with their relentless incompetence.

That’d be far better than the tragi-comic kind that fell on Main Street.

Had Moe, Curly, and Larry been in charge when Lehman Brothers bombed we would all have been far better off.

For all their frenetics, they would have been hapless to stop Mr. Market.

And Mr. Market would have been free to finish his already belated cleansing of Wall Street’s stables.

Even if Moe could muscle all those egos into a room, there’s no way Larry could structure transactions among semi-solvent parties to rescue the thoroughly insolvent over a single weekend. And Curly’s got little hair but less nerve.

(Even the fourth guy – Shemp? He’s no Buffett…)

Instead of destructive bailouts, we would have had healthy bankruptcies.

And the high-flyers who precipitated the crisis would have gotten their just desserts.

The “crisis” would have killed Lehman, of course, plus AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Citigroup, and a few other Wall Street gunslingers.

There would be no “contagion.”

Indeed, “Armaggedon” was a fiction.

It grew from a Blackberry Panic that broke out when Paulson and his posse of Wall Street sharpies watched Goldman’s stock plunge and concluded the entire system was about to implode.

It wasn’t; not even close.

The “system” – if you define it more broadly than the triumvirate and its fellow Acela Corridor groupthinkers – was fine.

Regular banks that did normal stuff like take deposits from working people and make loans to hopeful households had adequate capital.

And state-level insurance regulations would have made those harmed by AIG’s recklessness whole.

No Main Street Americans would have been hurt by AIG’s collapse. Or Lehman’s.

Or Goldman’s.

Had illiquid financial instruments been permitted to run their course… Had losses accumulated where due… Had insolvent investment banks been left to the Chapter 11 courts…

What would have followed?

A new set of M&A boutiques, asset managers, underwriting specialists, and sales and trading desks to perform any legitimate financial service the American economy required…

A cleansed system… a refreshed Wall Street… a forum for raising long-term capital… a place to facilitate the building of economies…

The triumvirate’s folly transformed markets into casinos for leveraged speculation on secondary paper.

Its triple-down on human greed, moral hazard, and free money has created a cult around an ever-rising stock market.

And, now, the boys at the center of the system have rolled the biggest bubble anybody ever saw.

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR