Quote of the Day (The Fed’s Stanley Fischer, on Bank Deregulation and Forgotten History)

"It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted. One can understand the political dynamics of this thing, but one cannot understand why grown intelligent people reach the conclusion that [you should] get rid of all the things you have put in place in the last 10 years."— Federal Reserve vice-chair Stanley Fischer quoted in Sam Fleming, “Lunch With the FT: ‘It’s Dangerous and Short-Sighted,” The Financial Times, Aug. 19-20, 2017

Among the reasons offered by those who voted for Donald Trump last November was the matter of appointments. These supporters could not abide a Hillary Clinton appointee to the Supreme Court handing down decisions for at least a generation, setting precedents for a half century. But appointments extend beyond the Supreme Court.

Steering the economy, for instance, may have a more immediate, even wider, impact than setting a new legal direction. That is the province of the Federal Reserve System, the central bank of the United States, which is tasked with ensuring a flexible, but safe and stable, monetary and financial system.

The Fed deals with nearly every aspect of how Americans spend and save money, with responsibility for influencing the money and credit supply, regulating and supervising financial institutions; serving as a banking and fiscal agent for the United States government; and supplying payments services to the public through depository institutions like banks, credit unions, and savings and loans. For all the mystery surrounding its operations, its writ is immense.

That’s why the unexpected resignation of the number 2 person at the Federal Reserve, Stanley Fischer, for unspecified “personal reasons” is likely to produce consequences that will affect us all. In the last Presidential election, Donald Trump criticized the Fed for impeding the recovery through a welter of regulations instituted in the wake of the 2007-09 Global Financial Crisis.

You can understand why Trump hates regulations so much. They have forced his company to comply with workers’ compensation and safety rules that drove up construction costs on his projects. And they have forced what little transparency exists into the financial aspects of his wide but rickety business empire that he preferred voters not to see.

But regulations are also the brakes on the speed of the economy, in the same way that they slow a vehicle. Sure, you can boost speed without them, but God help you if you are going downhill or need to avoid a crash.

Now Fischer’s departure, along with prior vacancies on the Fed’s board, gives the President the whip hand in reshaping this institution to his liking. A businessman with a blithe disregard for risk throughout his career is now in charge of an economy and can affect other people’s money. Think about that. You’re entitled to shiver at least a little.

As John Kenneth Galbraith warned in his The Great Crash: “Someday, no one can tell when, there will be another speculative climax and crash. There is no chance that, as the market moves to the brink, those involved will see the nature of their illusion and so protect themselves and the system. The mad can communicate their madness; they cannot perceive it and resolve to be sane.”