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Linus Wilson
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Dr. Linus Wilson is an associate professor of finance at the University of Louisiana at Lafayette. He received his doctor of philosophy in financial economics from the University of Oxford in England in 2007. He has conducted extensive research into the Troubled Asset Relief Program (TARP). He... More
My company:
Oxriver Capital
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Academic Research
  • Bernanke And Fed Rewrite History One Lecture And One Editor At A Time 0 comments
    Mar 23, 2012 4:39 PM | about stocks: GS, DB, CS, C, RBS

    The Federal Reserve Chairman Ben Bernanke has decided 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 argued 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 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 for 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 the 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 of18 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

    Citigroup (NYSE:C)



    Royal Bank of Scotland (NYSE:RBS)



    Deutsche Bank (NYSE:DB)



    Credit Suisse Securities (NYSE:CS)



    Goldman, Sachs (NYSE: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 money's 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.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I only own broad-based mutual funds.

    Stocks: GS, DB, CS, C, RBS
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