Mark Thoma Interprets William Poole

Mark Thoma turns Fed bank president William Poole's speech into a pretend interview:

Economist's View: Market Bailouts and the "Fed Put":

Thoma: Some people aren't going to make it to the end of this discussion. Any chance you could give a summary of the bottom line?

Poole: I can state my conclusion compactly: There is a sense in which a Fed put does exist. However, those who believe that the Fed put reflects unwise monetary policy misunderstand the responsibilities of a central bank. The basic argument is very simple: A monetary policy that stabilizes the price level and the real economy cannot create moral hazard because there is no hazard, moral or otherwise. Nor does monetary policy action designed to prevent a financial upset from cascading into financial crisis create moral hazard. Finally, the notion that the Fed responds to stock market declines per se, independent of the relationship of such declines to achievement of the Fed’s dual mandate in the Federal Reserve Act, is not supported by evidence from decades of monetary history.

Very much worth reading.

Comments

[Ben Ross]

Follow the link and read the comments. The comments are even more interesting than the speech.

[christofay]

Good call, Ben Ross, on reading the comments at the Mark Thoma post.

Also Krugman's and Delong's views have diverged on Greenspan. "Innovating Our Way to Financial Crisis" should be the final nail in Magoo's reputation coffin. But Magoo is a true Republican, a zombie, no matter how often he should have died off, he just keeps coming back. Funny that last week he was bleating on about something in Oslo just when some Norwegian reindeer towns were blowing up feeding on our financial innovations.

[Cranky Observer]

I am curious to know what the exact level of income/wealth is where moral hazard evaporates. We know from conservatives and conservative economists and policy makers that moral hazard does apply to people on welfare at $8000/year. We know from the conservative positions in the heath care debate that moral hazard applies to ordinary citizens in the $35,000 - $125,000 income range. We now learn from the same people that moral hazard does not apply to those exalted individuals who are paid $250 million/year and more to book profits for their organizations in the 10s of billions. Could someone help me out and explain exactly where it is between $125,000/year and $250 million/year personal income that the angels descend from heaven and lift the burden of moral hazard from the mortal's shoulders (presumably transforming him into a demigod)?

Cranky

[Barkley Rosser]

I thought Poole just retired. I saw someone about a month ago who attended his retirement dinner at the Fed.

In any case, these remarks are very peculiar for an old monetarist like him. Things are definitely getting pretty strange at the Fed. But then, things are getting pretty strange in the financial markets...

[Barkley Rosser]

That supposed retirement dinner took place at the St. Louis Fed, the appropriate location.