Published May 17, 2023, 11:20 p.m. by Liam Bradley
Since the early days of cinema, the documentary film has been used to explore a wide range of topics, from the everyday to the extraordinary. In recent years, the popularity of documentaries has exploded, thanks in large part to the rise of streaming services like Netflix and Amazon Prime. With so many options available, it can be tough to know where to start. If you're interested in learning more about the world of finance, then you should check out the documentary finance - The Power of the Fed.
The film explores the history and inner workings of the Federal Reserve, the world's most powerful central bank. Through interviews with key figures like former Fed chairmen Alan Greenspan and Ben Bernanke, as well as current chair Janet Yellen, the film offers a rare glimpse into the often-opaque world of central banking.
Whether you're a finance novice or a seasoned pro, you're sure to learn something from this fascinating documentary. So sit back, relax, and prepare to be enlightened about one of the most important institutions in the world.
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the coronavirus pandemic has left
millions of americans
out of work the people have gone now
without four or five or six
or seven paychecks and starting to catch
up they need food it's the most basic
thing
over the past year we've seen how many
americans are living on the edge
have you got any income at the moment no
no
and we have kids too so so you're not
making any money at the moment
but while businesses were shuttered and
millions were left
unemployed one place has been thriving
like never before
stock surging even as america enters its
darkest chapter yet of this pandemic
on wall street it was a banner year the
market has been open for 30 minutes and
we've gone straight
up the dow rising nearly 18 as the best
performance since 1987
after a major dive markets reached
record highs
the pandemic would turn out to be a blip
in the longest bull market ever
the price of stocks have skyrocketed and
so has the wealth of those who own them
elon musk has added over 10 billion to
his wealth just this week
some see signs of mania this gamestop
situation
we will never encounter a setup like
this again as more americans try to get
in on the party
right now we're in an enraging maniac
some worry a crash is to come
it's the burst of euphoria that
typically brings these things to an end
as the financial world has been
diverging from the real world
i've been trying to understand the many
forces at play
and i found one institution has been at
the center of it all
the federal reserve the nation's central
bank
it is the most powerful and least
understood institution in the country
and it really is difficult to overstate
how important this story is and how big
this story is
and how much it matters i've been
speaking to current and former fed
officials
is that really the first time you're in
a suit since covid from the waist down
can i take my mask off economists and
titans of finance
nobody knows how this is going to turn
out this is an experiment
i've heard that over and over that we're
living through an epic experiment run by
the fed
i believe this is the economic story of
our time an experiment that has been
dramatically changing
the american economy
the dow you know what right now breaking
news here stocks all around the world
are tanking if you want to understand
how today's financial world has grown so
far removed from the real world
and the role of the federal reserve you
need to go back to 2008
when investors speculators and wall
street bankers
nearly brought down the global economy
all right get on the train
otherwise you're just going to leave the
station wall street's shaken to its very
foundation today
we will need to stabilize repair and
reform our banking system
and get credit flowing again to families
and businesses
the new president in congress spent
hundreds of billions of dollars to
restart the economy
but at the center of the rescue effort
was the federal reserve
richard fisher was the head of the fed's
bank in dallas at the time
what the federal reserve does is provide
the blood supply for the body of our
capitalist economy
and what happened in 2008 is all the
veins in the capillaries and the
arteries collapsed
so every financial function had failed
it had collapsed and we had to restore
them
[Music]
that's when the fed stepped in its job
is to promote employment and keep
inflation in check
primarily by raising and lowering
short-term interest rates
in 2008 fed officials decided to do
something they hadn't done in half a
century
they began dropping rates eventually to
almost zero
those massive rate cuts have not been
stimulating the economy
so it's the other thing with americans
still suffering in the banking system on
the verge of collapse
fed officials there at the time told me
they felt compelled to go even further
and then the question was what else can
we do
and the committee came up with the idea
of quantitative easing
quantitative easing what in the world is
that quantitative easing that's just a
greek term to a lot of people
a lot of people want to know what
they're going to say about what we call
quantitative easing what are some of the
non-traditional quantitative easing or
qe
was championed by ben bernanke than the
fed chairman
the federal reserve has been putting the
pedal to the metal
so we're doing everything we can to
support the economy and we hope that
that's going to
you know get us going next year sometime
qe was an experimental way for the fed
to inject money into the financial
system
and lower long-term interest rates the
way they did it
was to literally create new money and
use it to buy huge amounts of things
like mortgage-backed securities and
government debt
from banks and other institutions
their hope was that the lower rates
would spark more spending and borrowing
throughout the economy
it's almost like alchemy you can create
money out of thin air if you're at the
central bank
so creating more money puts more money
in the banking system
put more money out there for the economy
to take it and put it to work
and to grow and to restore itself
as news of the fed's actions spread
throughout the financial world
andrew hussar a former fed official
who'd left to work on wall street
got the offer of a lifetime i was
sitting in a cafeteria
in stanford connecticut when i got the
call
i was eating a sandwich i almost choked
on it at the time
basically i realized very quickly what i
was being asked i was being asked
if i would manage the largest financial
markets intervention
by government in world history the job
was to join the fed office in manhattan
and manage a massive expansion of its
power in the financial markets under qe
buying more than a trillion dollars in
mortgage bonds from the banks
as quickly as possible the idea was that
the fed
was trying to get more credit and
cheaper credit into the hands of the
average american
there were millions of people losing
their jobs millions of people in
mortgages that they couldn't
afford and how could the fed use its
financial tools
to actually help the average american is
this something that had ever been
attempted before
no you have to realize we were in the
midst of a the next great depression
this was an incredible
collapse of the fundamental um
structure of the us economy in a very
short period of time and
uh we were building the plane while we
were flying in
everything in markets is a confidence
game
so the fed exists to restore confidence
when all confidence is lost
william cohen is a writer and former
banker who worked with us during our
months reporting this story
the idea of lowering interest rates and
the idea of quantitative easing
was basically pulling out all the stops
to make it
cheaper to borrow basically by
making money so inexpensive by suddenly
being abundant and cheap and easy to get
they just flooded the zone with capital
easy money easy money trillions of
dollars of easy money
like the greatest experiment in easy
money
in history
all that easy money sparked a rally in
the stock market
we saw it take its effect almost
immediately
the market reacted i was a little bit
surprised it took off that fast
how was that viewed inside of the board
room was that seen as success
yes it validated what what we thought
would happen
that's what we thought would happen when
you drive interest rates down
all the way out it forces investors into
taking bigger steps on the risk spectrum
cheap money is the fuel
for a financial speculator and for a
financial investor
what fisher and other former fed
insiders told me is that the stock
market rally was no accident
by design the fed's qe program
effectively lowered long-term interest
rates
making safer investments like bonds less
attractive
and riskier assets like stocks more
attractive
it was hard to argue with the results
stock prices kept going up
the old saying is don't fight the fed
don't fight the fed don't fight the fed
rule number one as a young trader you're
taught is don't fight the fed i don't
know what the hangover is going to look
like down the road from all this
extraordinary stimulus but for now
the markets love it don't fight the fed
they can
roll one you look at me so so it's we're
approximating an in-person interview
it'll work it'll work mohamed ellerian
remembers it well
he was running the largest bond fund in
the world at the time
and made a fortune for his firm
following the fed's lead
don't fight the fed the fed
is the one institution that has a
printing press
in the basement and there's no limits to
how much it can use
that is what makes the fed such an
influential player
in the marketplace keep an eye on the
treasury market
ellerian's firm helped advise the fed on
its qe experiment
he told me the expectation was that the
low interest rates in qe
would have a strong knock-on effect on
the wider economy
that was the theory in practice
the fed was very successful in terms of
moving asset prices
it was much less successful in moving
the economy and the result of that is we
got
the largest disconnect ever between main
street
and wall street between the economy and
finance
the banks are sitting on their bus and
they're still not lending money and
until one of the problems was that the
banks were holding on to a lot of the
money
instead of making it available to
borrowers the banking sector
is broken at the fed
andrew hussar was disappointed by what
he was seeing
i have great respect for the fed i
never question and i to this day i will
never question the intention
what i question rather is whether
their tools are able to help the
american people
in the way that they believe i came out
of qe1
100 believing that
it was necessary because we actually
helped to stabilize the economy
but wondering if there wasn't a
fundamental problem with
the approach in that the tools of the
fed
worked through the wall street banks and
in so doing
uh were disproportionately benefiting
the wrong people
the people who didn't really need the
help so basically what you're saying is
that
you were seeing in practice something
very different than
what was supposed to happen
theoretically yeah i saw i saw that
wall street is a private sector actor
and wall street has its own interests
and wall street can do what wall street
wants
and the fed was on some level at the
mercy of wall street
hussar and others inside the fed had
been counting on congress to step
in and help correct the imbalance target
more money to main street and the wider
economy
but then politics took a sharp turn
we've come
to take our government back tea party
supporters put republicans in charge of
the house
we need to restore fiscal sanity to this
nation
dimming prospects for congress and the
white house to work together
to stimulate the economy the fed
was on its own
was it palpable that the fed was sort of
the only game in town here
uh yes the fact was we were carrying the
load all by ourselves
the day after the midterm elections the
fed announced it would do another round
of quantitative easing
not just to stabilize the economy but
boost it
fed chair bernanke promoted the plan
writing that it would create a virtuous
circle
with lower mortgage rates making housing
more affordable
and higher stock prices boosting
consumer wealth
he went on television to counter critics
who were warning the decision risked
causing inflation
as they're looking at some of the risks
and uncertainties associated with doing
this policy action what i think they're
not doing is
is looking at the risk of not acting i
wanted to talk to bernanke but he would
not agree to an interview
but i did speak to sarah bloom raskin
who was on the board of governors at the
time
so many of these tools um had not been
tried before they were definitely like
break the glass kind of tools like what
are we going to do
in order to restart the economy here
you voted for quantitative easing too
what was your thinking there right so
um my thinking was that uh
we still had an economy that was far
from
its potential as qe began
it showed great promise we started to
see
that people's um sense of um
economic well-being was ticking up
somewhat people were finding jobs people
were finding homes
the foreclosure rate had slowed
so there was a sense that something was
working
and for that reason it was in my mind
worth supporting but outside the fed
some were saying that the cost of
quantitative easing might already
outweigh the benefits
a lot of talk about quantitative easing
qe2
the likelihood that that will have a
significant effect
is close to zero but the markets love it
joseph stieglitz is one of the most
well-known economists in america
and a winner of the nobel prize so
you're
doing a uh documentary on the
fed and monetary policy we are trying to
okay are we insane no no no i think it's
a great idea okay
stieglitz told me that while the fed was
doing some good he had greater concerns
at the time
the main thing i was concerned about was
that
the way they were trying to revive the
economy was a kind of trickle down
economics
the way quantitative easing works is
that it's a lowering
of the interest rates that leagues
stocks
to go up and so who owns the stocks
it's the people in the top not just the
top 10 percent
one percent one-tenth of one percent and
so
it increases enormously wealth
inequality
we had had increasing inequality
really since the late 70s
and this was putting that on steroids
so the immediate objective of saving the
banking system
was achieved but the broader objective
which was helping the economy recover
quickly in a robust way
in a way with shared prosperity total
failure
what sort of response did you get from
folks at the fed
to what you were saying at the time our
mandate is to do what we can to
increase employment to use the tools
that we have
and that's what we're doing was that
even part of the discussion at the time
in the boardroom whether there was any
risk of
exacerbating wealth inequality there
were strands of that
i would um i i recall the
these kind of costs were considered
speculative
because again the tools hadn't been used
before
so there wasn't a clear sense as to what
would you know sort of what the impact
would be
there was some discussion of it but
nothing definitive
some saw wealth inequality as a
trade-off there's nothing you could
really do about it
but it was a in my mind
in my discussion what i would present at
the table it would want to be one of the
consequences we just had to be mindful
of
that doesn't mean we shouldn't have done
what we did
for andrew hussar it was time to walk
away from the fed
it was a while ago but whenever i come
back here it's a very special feeling
i bet you were still working in this
building when
the second round of quantitative easing
happened what was your
reaction to it when that happened i was
not surprised by the announcement
but i was incredibly demoralized what i
was seeing outside of of the fed was
rising demands from wall street that the
fed continue
its stimulus the idea that the sky was
going to fall if the fed didn't continue
to
to print money and give it to the wall
street banks
and yet nobody was giving a coherent
explanation
as to how the fed showering trillions of
dollars
onto wall street banks was actually
directly benefiting
the average american and i'll tell you
why they weren't
talking about it because it doesn't we
did not see
the knock-on benefits that we had hoped
for the average american as much as we
wanted to
why is this kind of an emotional issue
for you well perhaps it's because i was
a true believer of the fed and i worried
about what this meant in terms of the
future about how much more the fed would
double down
and how addicted the the washington
and the markets would become to this
extraordinary stimulus
the fed would keep the money flowing
under successive rounds of quantitative
easing
injecting more than two trillion dollars
into the financial system
and by 2013 unemployment was continuing
to fall
and the fed saw signs that its policies
were having a positive impact on the
economy
fed chairman bernanke signaled that the
easy money might start to taper off
if we see continued improvement and we
have confidence that that is
um uh going to be sustained then we
could
in the next few meetings we could take a
step down
in our pace of purchases i was on the
trade floor i
remember chairman bernanke saying that
he would taper first we had to figure
out what does taper mean
and the minute people realized what
taper meant which is that that the fed
would step
back from buying all these securities
and even though the fed said it's going
to be gradual it's going to be measured
the markets had a massive tantrum the
market's selling off after federal
reserve chairman ben bernanke
said that the central bank could start
tapering its economy the markets went
into a fit
later this year became dysfunctional was
known as the taper tantrum well we all
know it when ben bernanke talks or the
federal reserve speaks the markets
listen
taper tantrum
markets are like little kids they want
candy
and the minute you try to take the candy
away they have a tantrum
you have big wall street reaction right
you have extreme volatility
where wall street says whoa whoa no no
no unacceptable and values plunge and of
course the fed doesn't like that
nobody likes that that's a that's a
precursor to
instability right but it put the fed in
a real
bindery and
chairman bernanke had to go in a
conference in boston and say no no no
we're not tapering
you can only conclude that highly
accommodative monetary policy for the
foreseeable future is
what's needed in the u s economy
bernanke's successor janet yellen had
better luck the following year
she was able to pause quantitative
easing without a tantrum
in part by promising to maintain the
fed's massive balance sheet
of assets it had bought and to keep
short-term interest rates low
the fomc reaffirmed its view
that the current zero to one-quarter
percent target range
for the federal funds rate remains
appropriate
low rates spurred companies and
individuals to borrow
in record amounts and the federal
government took full advantage of the
low interest rates as well
running the national debt up a trillion
dollars a year to new highs
[Music]
good afternoon everyone and welcome by
2018 the new fed chair jerome powell
was saying the economy was in a good
place citing historically low
unemployment numbers
and the fact that concerns about
inflation hadn't materialized
the us economy is in a good place and we
will continue to use our monetary policy
tools to help keep it there
there was a growing debate about whether
the fed should raise interest rates
and slow the flow of easy money for
those who are saying during that period
of time
you know you should have been concerned
about other side effects of keeping
rates so low
tell me what the downside of raising
rates would have been
the downside is keeping americans on the
sideline who want to work
i raised these issues with neil kashkari
president of the minneapolis fed
he's been outspoken about how the fed's
policies have helped
lower unemployment and improved the
economy overall
the fed has been on a mission i've been
on a mission to put americans back to
work
and help them get their wages up
especially for those lowest income
americans
and if it has had some effect on wall
street to me the trade-off is well worth
it if we can put americans back to work
so that they can put food on the table
they can take care of themselves that is
profoundly beneficial to society one of
the things that we have seen in this
country is a widening wealth gap
the question is what role if any of the
fed has played in widening that wealth
gap
well this is a great point and i'm glad
you raised it most people who make this
argument
ignore the fact that for many americans
they don't own a house
they don't own stocks they don't have a
401k the most valuable asset they have
is their job
so by putting people back to work and
helping to boost their wages
we are actually making their most
valuable asset
more valuable but the critics i spoke to
questioned the fed's success and pointed
to other indicators
wealth was becoming increasingly
unevenly shared
in that quote good place the one percent
held 32 percent of the nation's wealth
and the majority of americans said they
were financially anxious
40 of americans didn't have more than a
400
rainy day fund most americans were
tremendously fragile
economically speaking karen petru is an
unlikely critic of the central bank
she spent her career as an advisor to
banks and large investors
analyzing how financial policy played
out in the real world despite the quote
record employment when you break those
numbers down
you can see that more people had jobs
and that's great
but the wages and the growth of the
economy remained
very tepid and very unequal when you
speak to folks from the fed
about the idea of raising interest rates
they'll say what was the alternative
and you say what to that i say
what you were doing wasn't working we'll
never know
whether raising rates would have
dampened growth we do know that keeping
rates ultra ultra low
didn't raise growth they raised markets
[Music]
petru and other critics were concerned
that the fed's low rates and easy money
policies
were fueling troubling trends on wall
street and in corporate america
in particular was the amount of
corporate borrowing
valuations are generally elevated
especially
corporate debt we have flag the rise in
corporate debt we have entirely too much
corporate debt out there
and taking advantage of low interest
rates corporations were selling bonds to
big investors
i saw numerous studies and reports
detailing the extent of the debt
and how even marquee companies were so
leveraged their credit ratings plummeted
the fed had hoped that companies would
put all that borrowed money to good use
and invest in their workforce and their
infrastructure
but in reality it was playing out
differently buybacks
stocks of companies were often borrowing
money to buy back their own stock
making the remaining shares more
valuable and the price is higher
as a corporation you realize all that
matters is the stock price
so what do we have to do to increase the
stock price
and more often that is buying back the
stock
financial reporter dion rebowen covered
the growing trend
so it used to be the fed would lower
interest rates
businesses would then take on more debt
they would use that debt to hire more
workers
build more machines and more factories
now what happens is the federal reserve
lowers interest rates
businesses use that to go out and borrow
more money
but they use that money to buy back
stock and invest in technology that will
eliminate workers
and reduce employee head counts they use
that money to give the ceo
and other corporate officers big bonuses
and then eventually issue more debt and
buy back more stock
so it's this endless cycle of things
that are designed to
increase the stock price rather than
improve the actual company okay ge just
authorized a 50 billion dollar stock
buyback
the numbers were astounding more than
six trillion dollars in corporate
buybacks
in the decade after the financial crisis
warren buffett likes apple's buybacks
well
why wouldn't he's a shareholder and
they're buying back 100 billion
buybacks it's just another example of
things that used to be viewed as kind of
ooh
you know just going mainstream sheila
bear
a former top banking regulator was
issuing public warnings at the time
that the fed was incentivizing bad
behavior on wall street
despite its best intentions i can't
fault the company so much because these
interest rate this interest rate
environment creates very strong
economic incentives to do exactly what
they're doing
it's hard to create a new product it's
hard to come up with a new idea for a
service
it's hard to build a plant and hire
people and run the organization
it's real easy to issue some debt and
pay it out to your shareholders to goose
your share price
that's real easy to do but it doesn't
create real wealth it doesn't create
real opportunity it doesn't create jobs
it doesn't improve the labor market
but it's just another example of how
these very low interest rates have
really distorted economic
activity and frankly been a drag on our
economic growth not a benefit
corporate buybacks the elevation of
corporate debt
how is that viewed by you and others at
the fed something we pay a lot of
attention to but when
companies are buying back their stock
one of the things they're telling us
is we don't have profitable places to
invest and it's easier for us just to
buy back our stock
that's concerning in terms of the future
of our economy but that's not because of
the fed
so we pay attention to it it really
matters but i in my view we don't it's
not something we control
in our conversation kashkari was quick
to dispute the criticism
that the fed is really just boosting
financial markets and helping wall
street
there is this idea on wall street that
the fed
kind of has our back and that because
you may have well-intentioned policies
that are trying to get everybody to work
there is this side effect this
unintended side effect
of just kind of really um helping the
rich
that argument ignores the benefit to the
poor and if you're sure
if you're going to ignore the benefit to
the poor then we're only helping the
rich
but of course that's an incomplete
analysis when you actually sit down and
say well let's go through the trade-offs
of the choices that the fed has whether
it's interest rates or it's quantitative
easing
it's not just about wall street it's not
just about asset prices
it's also about thinking about the men
and women in america who are trying to
find work
and who want to have higher earnings and
who deserve higher earnings
if we are benefiting them by helping
them find work and helping them have
higher wages
i will take that trade off there's an
ongoing disagreement among people i
spoke to about how much the fed
has been helping main street but what
most do agree on is that it's fueled the
massive growth of the financial sector
a golden age for wall street as some
have called it
even some of the largest beneficiaries
of this trend told me it made them
uncomfortable
like legendary investor jeremy grantham
in my career in america the percentage
of gdp that goes to finance
has gone from three and a half to eight
and a half
we're in a way we're like a giant
bloodsucker
and we have more than doubled in size
and sucking more than twice the blood
out of the rest of the economy
and we do not generate any widgets
we do not generate any any real
increase in income we are just a cost
when you say we
you mean you and other members of the
financial community
have been this kind of blood sucker on
the economy is that is that what you're
saying
yes collectively we fulfill a completely
necessary service
but what we have done is created layers
upon layers of more and more convoluted
expensive financial instruments and
that's what makes
all the profits for the financial
industry
and it's it's taken a lot of ingenuity
and salesmanship
to make this happen and a lot of
lobbying in congress
etc etc and we have imposed
on the rest of the economy the idea that
banking and finance
are utterly important at all times
if if you do anything wrong to us the
entire
economy will collapse in ragged disarray
as finance grew so did the risks
one concern was what would happen to all
those companies that had gone into debt
if there was a downturn and what would
happen to the trillions of dollars in
corporate bonds
that had been sold to investors
there were also increasing warnings
about a key player in all the borrowing
going on
little-known and unregulated financial
companies that had been flourishing in
the easy money economy
known as shadow banks shadow banks
are large financial institutions
that don't have bank charters so they
don't have a special relationship to the
government
they have other financial licenses to
conduct
other types of financial businesses lev
minand who'd been an economic advisor at
the fed and treasury department
said the biggest source of worry about
the shadow banks was their lack of a
cushion in the event of a downturn
the core of the problem of
the shadow banking system is that it's
extremely fragile
anybody who's an investor in a shadow
bank who has their money in a shadow
bank
instead of a real bank is going to have
an incentive to withdraw
in the face of any uncertainty so little
economic shocks
that cause asset prices to fall have the
potential to trigger
runs and panics and so what we what
we've done is
by allowing this shadow banking system
to develop is we've inserted a source of
instability in our entire economic
system
that doesn't need to be there and that
has the potential
of throwing us all off course let me
start by saying that my colleagues and i
that potential instability posed by the
shadow banking system
was on the fed's radar how are you
thinking about
potential risk bubbling up in the in the
broader shadow banking system
you know this is this is a project that
the financial stability oversight
council is working on now
and also the financial stability board
globally is looking carefully at
leveraged lending and uh you know we
think it's a
it's something that requires serious
monitoring despite those concerns
little action was taken by the fed other
regulators or congress
and the system remained vulnerable to a
shock
it would arrive in early 2020 a
preliminary investigation into a
mysterious pneumonia outbreak in wuhan
china has identified a previously
unknown coronavirus
when the pandemic hit it was so unlike
anything any of us have experienced in
our lifetimes
we've been paying attention to what was
happening in china for a few months
i was calling my contacts global
businesses that have big operations in
china
to understand what their employees and
staff were seeing and we were all trying
to learn as much as we can about
pandemics and what it's likely going to
mean
major sell-off across europe this
morning i think we all figured out very
quickly
the pandemic and the virus would drive
the economy investors are spooked by the
growing number of infections
outside china but how fast would it hit
us how widespread
what would the health care response be
it was maximum
uncertainty and you were seeing that
uncertainty manifest in financial
markets what you have here
are concerns fears worries
and deep uncertainties about what's
likely to happen next
people were scared investors were scared
individuals were scared
and they said you know what i just want
cash
markets giving us the worst two-day
point drop
ever in history i don't even want
treasury bonds
i don't even want corporate bonds i
don't want stocks i just want
cash and when everybody in the economy
says i want cash at the same time
that leads to potentially a collapse of
financial markets market functioning
was starting to cascade into failure the
dow plunging again today the 11-year
bull market
has ended stocks were just on a
downward free fall you had credit
markets seizing up
people were selling anything that wasn't
nailed down investors are really growing
incredibly pessimistic
the us economy the biggest economy in
the world is in free fall
then comes the realization that we have
to lock down
the list of closings and activities
being suspended is growing from coast to
coast
covid had hit the global economy hard
and fast
but it wasn't just the pandemic that was
causing a financial crisis
it was the vulnerabilities of a now
highly leveraged financial system
attention focused on the shadow banks
what we saw in march of last year
was a full-blown panic in the shadow
banking system it wasn't something that
you have
when you have a pandemic you have a bank
panic it was
you have a bank panic because you had
some exogenous shock in the economy and
you have these underlying
vulnerabilities in your monetary system
that you haven't resolved the fed sprang
into action
they turned back to quantitative easing
buying hundreds of billions in debt from
financial institutions
by mid-march they made more than a
trillion dollars available to the shadow
banks
and they cut interest rates back down to
near zero federal reserve
cut interest rates to near zero what
that tells all of us
is that the economic impact of the
coronavirus is going to be crippling
the federal reserve lent half a trillion
dollars to securities dealers half a
trillion dollars to foreign central
banks
bought two trillion dollars of treasury
securities another trillion dollars of
mortgage-backed securities
it flooded the zone with new government
cash
to stabilize this system but it wasn't
enough to stop the
panic the emergency rate cut failed to
calm investors
in fact it did the opposite future the
corporate debt market had frozen up
and companies were unable to finance
themselves
putting the wider financial system at
risk there's just this
corporate debt picture out there and
we're just beginning to see how those
dominoes are going to fall
so on march 23 the fed took its economic
experimentation to a whole new level
with congress's backing fed chair powell
announced a range of new loan programs
he said the fed for the first time would
be willing to buy up corporate debt
we often talk about the federal reserve
using a bazooka to tackle
markets and the economy this is bazooka
cannons and tanks all at once
so this was huge this was the fed
stepping in on an unprecedented scale
and saying to the market we will do
whatever it takes
the motion is adopted
by the end of march congress would also
act passing the largest economic
stimulus bill ever
the 2.2 trillion dollar cares act the
bill
rushed to the president after clearing
the house in a voice vote
it provided support for individuals and
small businesses
[Applause]
a big portion of the bill nearly half a
trillion dollars
was earmarked to support the fed's
lending programs
i don't think most people are aware that
we came this close to a
bona fide financial crisis yeah i think
a lot of it
is missed for two reasons one there was
a lot of other stuff going on in the
news at the time
the other is the federal reserve did an
amazingly good job
at putting out the flames of this
panic and even though the panic in march
2020 was more severe along many metrics
than
anything we saw in 2008 the government's
response
was more powerful in certain respects
and we're lucky that that the government
was successful or
we could be living through a true uh
depression
and there's the opening markets
but in trying to keep workers employed
and companies afloat
the fetid also used its power to rescue
some of the riskiest parts of the
financial system
like the junk bond market is this just
like a high yield junk bond bailout i
mean i don't
get it we've got to live with it now
this is an emergency
to the critics the fed was sending the
wrong message rewarding the wrong people
over the years we've been trained to
believe
that the fed is on our side what the fed
has trained us to believe is that if we
make a bet in the market
and we win we're on our own we get to
keep the profits
if we lose they will bend
every effort and every dollar they can
get their hands on
one way or another to bail us out
this is a symmetry of the most splendid
kinds
a speeds go ahead and clap it off please
billionaire bond investor howard marks
called the fed out at the time
saying it was undercutting the way the
free market is supposed to work
there are negative ramifications to this
one called moral hazard
which means conditioning
people to believe that if there's a
problem the government will bail you out
and if people really believe that then
there's no downside
to risky behavior because if there's a
problem it won't fall on you you'll get
bailed out
if you if you play it aggressively and
and succeed
you make money if you play it
aggressively and fail
you'll get bailed out so has moral
hazard gotten worse as a result
of of this bailout there's no barometer
of moral hazard
uh so i can't give you a reading all i
can say is that
for the last year or so uh
risk-taking has been rewarded and that
tends to
bring on more risk-taking do you see
moral hazard in what has just happened
oh absolutely um i i think uh
now you know the entire business
community has
has had a taste of bailouts you know and
boy
it doesn't work really really nicely uh
yeah so i i
fear that now the fed stepping in not
just to bail out wall street but the
entire you know corporate america is
starting to be embedded into people's
thinking
you know people talk about the survival
of capitalism
but this is the biggest threat to
capitalism in good times when anybody
can make money you reap those profits
and bad
times the fed the fed just keeps
stepping in you have this
never-ending ratchet up the market's
never correct it's like a no-lose casino
it is it isn't a loose casino that's
exactly right this is the second time in
12 years
that you and your institution have had
to funnel into the financial
system trillions of dollars and there is
the sense that the financial markets
have a iron-clad backstop from the fed
well i completely agree that it is
unacceptable that 12 years after 2008 we
had to do this again
i am proud that we did what we did it
was the right thing to do it was
necessary
but it is unacceptable as an american
citizen that we have a financial system
that is this risky and this vulnerable
but what if any
responsibility or accountability does
the fed have
for the financial system having been
so risky and so vulnerable to a shock
well i think all financial regulators
that have a have
a seat at the table have a have
responsibility for
what was left incomplete after 2008 and
where we go from here
we need to use this crisis to finish the
work
that we did not finish after 08. with
all due respect i just i i wonder if you
could be a little bit more explicit with
me
what will the fed own when it comes to
the vulnerability of the system
well i reject the thesis i actually
don't think it's been the fed's monetary
policy
that has led to these vulnerabilities i
think it's been incomplete regulatory
policy that has led to these
vulnerabilities
that's an idea kashkari expressed
repeatedly to me
that there are other actors responsible
and larger economic forces at play
beyond the fed's the decisions
of the pandemic is going to be extremely
long people who lost their jobs
with unemployment still high the fed and
congress have continued to pump money
into the economy
trillions to struggling individuals and
small businesses
and once again quantitative easing to
keep interest rates low and the cost of
borrowing down
last march the fed announced that
they've just decided it's
going to be the right thing to do to
drive 100 miles an hour okay your
judgment call
a year later they're still driving 100
miles an hour
and you ask them why exactly are you
driving 100 miles an hour now
say well it was a good idea last march
and we don't want to change things too
quickly and so yeah we just think it's a
really good idea
peter fisher spent years at the new york
federal reserve
and at blackrock the largest asset
management firm in the world
it's pretty basic in in medicine that
our doctor may give us a drug
which in a small punt punchy dose
for a brief period of time might help us
recover from whatever ails us
but that the same medicine the same drug
taken in massive doses over long periods
of time
might kill us or make us ill or have
perverse side effects
corporate america has taken on even more
debt and investors are gobbling it up
the housing market and the millions of
people who own some stocks and bonds
are seeing a boom elon musk has added
over 10 billion to his wealth just this
week
and for the richest americans it's been
a bonanza
just the billionaires in the united
states from march
2020 to february 2021 have grown their
wealth by 1.3
trillion dollars 1.3 trillion dollars
billionaires now hold two-thirds more in
wealth
than the bottom half of the u.s
population the thing about
wealth is what creates wealth is wealth
when you have 100 million dollars to
invest it's much more easy to become a
billionaire
than when you have a hundred dollars to
invest
you ever think about trading stocks but
that hasn't stopped many hundred dollar
investors
from trying to get a piece of the action
people like us can trade just like the
big guys
with robin hood
all these brokerage platforms saw the
largest growth of new users they'd ever
seen
because people said now's my opportunity
i'm going to invest my money in the
stock market i may not understand
what the fed's doing or how it works or
what exactly is going on the dow rising
nearly 18
as the best performance since 1987 but i
understand
the fed takes action stock prices go up
these people get rich and it became a
very clear mandate for people if i want
to get in on this economic recovery
we're having
i've gotta buy stocks i'm gonna take my
stimulus check i'm gonna put it in the
stock market
so they're online they're trading stocks
they're buying and selling
and putting money into these stock
accounts they started creating their own
community
welcome declan michael lee so many
people bob smith
jerome powell has become a kind of cult
figure
master of the money printer money
printer
invest in these four tickers i'll put
them right above
billions have been piling into so-called
meme stocks
this gamestop situation we will never
encounter a setup like this again
new financial assets like nfts
non-fungible tokens
from art to music to sports it's a new
phenomenon that is moving quickly
and with big numbers and
cryptocurrencies
bitcoin has been on a wild ride during
the past few months
it doesn't really matter if something is
a good buyer if it's fundamentally sound
the money is crazy and awesome and i
think there's been so much money
injected into the economy that people
just need
things to buy i mean what you're
describing is mania
yeah yeah you could call it mania i mean
certainly we are in a mania because
again the fed has put a floor underneath
asset prices there's only one direction
that things can go and that's up
otherwise the fed will step in and act
so things can only go
up why wouldn't you just buy
when i look out at what's been going on
the last six months
i see financial mania i don't know what
the right value
of some companies is but when they
change by 50
in six months i think we should all
recognize
boy that's hard to estimate the value of
that if it's 50
higher now than it was six months ago i
guess we were pretty bad
on estimating its value six months ago i
assume you're somebody who has
assets who's invested and
that this has been a good period for
someone like you
in part because you own assets
the fed having pumped asset prices to
historically high
levels doesn't make me feel comfortable
i'll be i feel as anxious today as i've
ever felt about the financial world
because of my belief
that the fed has been pumping up asset
prices
in a way that is
creating a bit of an illusion
i think the odds are now sort of one in
three
very high that we will look at this
as an epic mistake and one of the great
financial calamities of all time
they have the housing market the stock
market and the bond market
all overpriced at the same time and they
will not be able to prevent
sooner or later the asset price is
coming back down
so we are playing with fire because we
have the three great asset classes
moving into bubble territory
simultaneously
[Music]
there is a growing conversation right
now about the fed's role
um about whether it's driving wealth
inequality whether it's driving
asset prices into dangerous territory
that could pop right
in our faces and whether the whether the
financial system can withstand
that i mean there are these seemingly
legitimate questions about being
in what seems to be uncharted territory
these questions come from people who are
keen wall street observers or wall
street i never have once
heard this line of questioning from a
member of congress
that represents a low income or minority
district never once
they come to us and they say why can't
you do more
they never say oh my gosh you're just
benefiting wall street
you know raise interest rates because i
want to keep wall street in check
they say help my constituents find work
so that's why i mean i find these
questions
amusing because i hear them all the time
from wall street
and these are folks who don't care about
what's actually happening on main street
i don't hear it from main street i
certainly don't hear from low income
communities
and i've heard all of these questions
before the price of virtually everything
seems to be going up
from used cars to plane tickets to
furniture
if you're going to get in your car and
drive to work your gas costs more
there are now signs of inflation
percolating through the economy
annual inflation is expected to top
three and a half percent in the fourth
quarter
so now there's speculation the fed may
speed up its interest rate plans
the fed insists it's temporary but is
signaled it may taper quantitative
easing
and raise interest rates as early as
2023. fed chair jerome powell said while
the economy has rebounded the job market
is still hurting
federal reserve chair jerome powell
announced that
tweaks to monetary policy may still be
needed
it is an awfully daunting task
i pray for jay powell and i pray for the
committee
doing this successfully will be a heck
of a hat trick
i would imagine people at the fed are
scratching their heads
about how they are going to be able to
get that
faucet calibrated to a lower
level when necessary and the risk of
them
turning off the valve right now is what
the risk of turning the valve off
is is economic collapse right you would
you would see asset values
actually drop through the floor
you know in a complete lack of
confidence the fed by the way would not
i can't imagine
turn it off in one you know sort of in
one move but when the fed does move it's
going to want to do it
probably quite gradually and the
question is
will they be able to do it in such a way
that doesn't create
this kind of massive economic
dislocation
whatever the fed does next the
consequences will affect us all
[Music]
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