Wall street feeds on borrowing capacity and leverage. The day the Fed and the treasury became de facto members of the board of Citicorp is the day the bubbles began. It is difficult to overstate the malfeasance here.

There were many opportunities to end the fraud. The Bushco team used the courts to deflect attempts by the States to address the issue. The question is not just about bubble creating and sustaining Fed policy but also about opposing a rogue government dead set on destroying the wealth of the average American. Fear of opposing the rogue government plays a bigger part than is generally recognized.

As well as allowing the merchant banks to invest in anything, so long as their assets/obligations do not grow big enough to push them into the too big to fail category, and if they are given access to any fed subsidies, maintain certain capital requirements.

This is a link to Hutchinson’s article
http://www.atimes.com/atimes/Global_Economy/JC27Dj02.html

The financial system cannot be managed by interest rate dodgeball games alone. Noland points the way that financial flows within the system must be monitored and constrained if we or anyone is serious about avoiding bubbles in the future. This is an issue presently much on my mind as well.

Furthermore, the stated policy that the Federal Reserve System has a policy charge of ‘responding to unemployment’ is the worst kind of hokum. It does nothing of the sort. It is anathema to many in the US that we have an interventionary _government exectutive_ which acts to ameliorate unemployment with benefits and retraining while intervening directly in the economy to stimulate employment through spending, subsidy, partnerships, and the like. Why, “that’s Socialism.” So the Congress and the Exectutive especially want, need, and loovvvve to have their hands tied when it comes to acting against unemployment. “That’s the Fed’s brief.” And what does the Fed _do_? It makes money cheap and easy at the top of the financial system in hopes that financiers will make so much money some of it trickles down into the real economy. What this means is that, in the guise of alleviating unemployment the Fed bails out bankers to keep them happy, profitable, and lending.

The appropriate role of a central bank is to keep the financial system from killing itself, which said systems have a demonstrated propensity to do. A central bank needs to look to the currency it manages as well, but this also requires coordination with the public fisc, something which has badly broken down in the US as well. The more a central bank commits itself to enhancing bankers’ prosperity, the more bad policy we will see.

I agree with Noland also, however, that ‘it is early yet.’ We haven’t hit the worst parts of this trough at all so far. So there is time and more to publicize the severe costs of bubbles to accumulated capital and consumer-level financial health and planning. Bubbles are bad, whether in asset prices, credit, or malinvestment; they DO NOT equate to real growth. Many get rich on the the way up; but many more lose much on the way down. One would think that central bankers would understand this, but clearly the ones we have now do not: They can be replaced. We need central bankers committed to financial system stability, and a govenrnment committed to real productive investment rather than speculative wealth gains. The more we talk about the issue while the consequences of failue are before the eyes of all, the more likely we are to achieve change.