Every market cycle has its genius.
Even a market cycle as wild and volatile as this one has been.
And the latest genius might be just what the U.S. Federal Reserve needs to restore order around here: She might even be able to bring credibility back to the global financial markets.
Elizabeth Duke goes by "Patsy." And while the nickname may be soft, the person behind the moniker isn’t soft. In fact, we believe that Patsy Duke - a career commercial banker - is the only Federal Reserve insider who understands how the global money markets actually work.
As such, she might just be the next central bank chairman.
We say that because, unlike current Fed Chairman Ben S. Bernanke and the rest of the Beltway Boys - all of them academic theoreticians, data experts, or policy wonks - Duke has real commercial banking experience.
Over the last 32 years, Duke worked her way up from the teller’s window, where she started, to an executive vice president’s post at Wachovia Corp. (WB). Along the way, she also became the first woman to chair the American Bankers Association - no small feat, considering how much of an "Old Boy" industry banking has always been.
Duke actually understands the consequences - what will happen - when you hand out $37.5 billion in taxpayer-subsidized freebies a week like the Federal Reserve is doing right now. And as the only commercial banker on the Fed’s governing board, she’s literally the only one with a firm grasp on the key regulatory issues the central bank should be addressing.
We realize that whenever someone hears the word "regulatory," there’s an almost-unstoppable urge to yawn, followed by the desire to surf the Web for last night’s West Coast baseball scores.
But don’t be so quick to forget that the seeds of the current global financial crisis were sown by the almost-complete breakdown of mortgage-lending standards and banking-industry oversight - some of which can be laid right at the feet of the arrogant theoreticians who thought they knew better and who viewed the borrowing public (read that to mean consumers like you and me) as merely a bunch of numbers.
In the interest of realism, let me say right now that for Patsy Duke to be given the Federal Reserve’s scepter, she’s clearly got a long line of hurdles to clear. But we’re hoping that she does.
As Money Morning readers know very well, I believe that Team Bernanke fishtailed badly as it tried to get up to speed on the subprime mortgage mess, turning what could have been a very clean race into the Global Garbage Grand Prix. And the central bank’s weak-dollar policies have the potential to hurt the U.S. economy for years to come.
From a global perspective, fears of an ever-worsening contagion finally seem to be subsiding even if a weak housing market, a badly outdated regulatory system, and increasingly illiquid funds and still more write downs suggest the risk of a sharp economic pullback or even a recession are still extant. But those are the very types of insidious financial nightmares we’re hoping Duke’s influence and experience will help prevent.
None of this eradicates the inflationary pressures we’re all feeling right now.
But the chances are very good that Duke is the first Federal Reserve governor who understands, on a personal level, just how hard it is to make ends meet when the economy slows down, inflation takes hold, and investors get pinched.
Of course, none of this really matters unless the markets turn around. But when it comes to the Fed, the distinction of having a single, real-world executive included in its ranks will help it restore confidence, and perhaps even fix the financial markets before they get any worse.
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