More Fed Fumbles on the way
Are we not even possibly heading towards another Fannie and Freddy, only this time subsidized green boondoggles?
By Capital Thinking • Issue #1038 • View online
Fed Pick Raskin Tries to Mollify GOP Critics on Climate Stance is the Bloomberg.com headline.
I previously praised Raskin for the clarity of her statements. Unlike most others in this game, she straightforwardly advocated the Fed starve fossil fuel companies of money in the name of climate.
Is the Fed really clairvoyant?
For example
“We must rebuild with an economy where the values of sustainability are explicitly embedded in market valuation,” she wrote. This will require “our financial regulatory bodies to do all they can—which turns out to be a lot—to bring about the adoption of practices and policies that will allocate capital and align portfolios toward sustainable investments that do not depend on carbon and fossil fuels.”
Good. Let’s stop pretending there is some “climate risk” and talk honestly. As Bloomberg reports, she is furiously backpedaling
“The Federal Reserve does not engage in credit allocation and does not choose the borrowers to whom banks extend credit,” she wrote.But she did see some potential for the Fed to act, particularly in analyzing the climate risks facing supervised institutions. Those financial risks “might include disorderly price adjustments in various asset classes; potential disruptions in proper functioning of financial markets; and rapid changes in policy, technology, and consumer preferences that markets have not anticipated.”
This seems like more climate-risk boilerplate. But the last paragraph here caught my eye, and is the point of this blog post.
Read it closely. This is supposed to reassure us?
Forget climate.
The future head banking regulator thinks the Fed actually has the capacity and mandate to try to foresee and do something about “disorderly price adjustments” in “various asset classes” – that means all over the financial system including stocks – “potential disruptions” and best of all “rapid changes in policy, technology, and consumer preferences that markets have not anticipated”
Really?
This is, remember, the same institution that was completely surprised by inflation, completely surprised by a pandemic (we’ve never had those before, have we?) and completely surprised that mortgages and mortgage backed securities might melt down.
The gap between aspiring technocrats’ view of their all-seeing knowledge, control, and reality seems pretty large!
John H. Cochrane
Are we not even possibly heading towards another Fannie and Freddy, only this time subsidized green boondoggles?