15 March 2008

Bear Stearns

As an addendum to the previous post on the Federal Reserve "bail out" of Bear Stearns, I think I may have found a clue with which to decode the obscure, oracular wisdom of this wise federal institution known affectionately as "the Fed."  According to a NY Times article, a certain Douglas W. Elmendorf, a senior fellow at the Brookings Institution and himself a former Fed economist said, "Modern monetary policy-making puts a lot of weight on rules, but there is no rule book for an economic crisis."  (Emphasis mine.)

Ahh!  I see!  So it is not principles but pragmatism that is required in a crisis.  In the Fed's monetary policy - the very raison d'etre of which is presumably to "manage" the money supply by fiat in order to avert some alleged disaster that laissez faire capitalism would cause - everything is fine as long as... well, as long as everything is fine.  But when there is a crisis (a crisis, by the way, caused almost invariably by other government meddling), the rules simply go out the window.  There are no rules, no principles, no fundamentals.  There are only whims, tea leaves, and coin flips.

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