A New Direction At The Yellen Fed

by: Cam Hui, CFA

I almost fell off my chair when I read the Bloomberg headline:

This is Stanley Fischer, the not yet confirmed nominee to be Fed vice-chair, former head of Israel's central bank and former thesis advisor to Ben Bernanke and Mario Draghi, voicing an opinion about potential Fed policy [emphasis added]:

Stanley Fischer, the nominee to be Federal Reserve Chair Janet Yellen's top lieutenant, said governments must devise measures to ensure taxpayer dollars are never used again to save a failing bank.

"It is critical to develop now the tools needed to deal with potential future crises without injecting public funds," Fischer said in the text of remarks prepared for a speech today in Stanford, California.

Efforts to avert future crises are driven "by the view that we should never again be in a situation in which the public sector has to inject public money into failing financial institutions in order to mitigate a financial crisis," he said.

Fischer is a former central banker and the breed is normally reserved in their public statements. However, his stature as an elder statesman does allow him some leeway and such views no doubt hold a great deal of sway in the halls of the Federal Reserve.

I was always of the opinion that the bankers should never have been bailed out the way they did. The Swedish solution of offering a nationalization solution if a bank could not find private financing was the better solution. At the height of the crisis, the funds allocated to TARP could have bought the equity of the entire BKX Bank Index.

While such a change in policy amounts to shutting the barn door after the horse has bolted, it nevertheless amounts to a brand new direction at the Yellen Fed.

Suddenly, the nuances of the FOMC statement seems insignificant compared to this development. Wow!

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui's blog to ensure it is connected with Mr. Hui's obligation to deal fairly, honestly and in good faith with the blog's readers."

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.