The Federal Reserve Chairman Ben Bernanke has decided that the best way to resuscitate his disastrous tenure as head of the Fed is to hold open lectures on why the Fed is not to blame for the financial crisis. The Wall Street Journal reports that "helicopter" Ben Bernanke said that the historically low interest rates that poured gasoline on the red-hot housing market had nothing to do with the crash. I'm sure that he will also say that the Fed is not to blame for the lax supervision that led to the failure of Lehman Brothers and the Fed rescues of AIG (AIG) and Bear Sterns. The net result is that 2.6 million Americans lost their jobs in 2008, and another 4.6 million lost their jobs in 2009. Unemployment went from 5.0 percent to 10.0 percent. I suspect that the statistics on Federal Reserve employment were much less brutal during the Great Recession.
Unfortunately, there are few other Ph.D.'s in finance and economics willing to take on the Fed. The Fed's role as the biggest employer of U.S.-based Ph.D.'s in those disciplines might have something to do with that. Yet, the Fed gets an assist from all those well placed and supposedly independent academics that it signs up for paid "visiting positions" to pad those scholars' university salaries.
The editorial boards of supposedly independent journals that study banking, the Fed, and monetary policy are regularly dominated by scholars on the Fed's payroll. A supposedly prestigious academic finance journal, the Journal of Financial Intermediation, refused to send a jointly written paper about a $2.3 TRILLION bailout of eighteen Wall Street banks to editors and referees without financial ties to the Fed. Below is a list of the top 5 borrowers from the program and the market value of the Treasuries borrowed from the Fed:
Based Inside US
MV of Treasuries Borrowed in Billions
Royal Bank of Scotland (RBS)
Deutsche Bank (DB)
Credit Suisse Securities (CS)
Goldman, Sachs (GS)
100 percent of the top 5 editors of that journal held down paid visiting, advisory, or consulting jobs with the Fed, according to the CVs on their websites. If you want to publish at the Journal of Financial Intermediation, it appears that it must be approved by somebody on the Fed's payroll. I think that the Fed is getting its moneys' worth! Luckily, this journal is just the most reckless about its lack of concern for conflicts of interest in my experience.
Today the Fed lets the too-big-to-fail banks buy back stock and pay big dividends. It supports the dangerous mergers of banks working towards the goal of being too-big-to-fail banks. Yet, there is little criticism from academics studying the Fed. My joint research finds finance academics lining up to pile their criticism on a $205 billion Treasury bank bailout, but the academic profession has ignored the numerous and much larger Fed sponsored bailouts. (Relatively, few economics of finance Ph.D.'s are on the Treasury's payroll.) Unfortunately, too often you cannot make people understand problems that they are paid to ignore.