Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America by Danielle DiMartino Booth

CHAPTER 1
“Groupstink”
Never in the field of monetary policy was so much gained by so
few at the expense of so many.
—MICHAEL HARTNETT, BANK OF AMERICA MERRILL LYNCH CHIEF INVESTMENT
STRATEGIST, NOVEMBER 1, 2015
Early morning, December 16, 2008, with a drizzle of freezing rain
falling, few would even glance at the line of inconspicuous Mercury
Marquis sedans pulling up to Washington, DC’s Fairmont Hotel. Emerging
from the luxurious four-star establishment, their Foggy Bottom home eight
times a year, are eleven little-known bureaucrats with their contingent of
requisite subordinates.
There is no fanfare to mark the coming momentous decision they are to
take on as they comfortably settle in for the ten-minute caravan to the
neoclassical white marble edifice known as the Marriner S. Eccles Federal
Reserve Board Building, located at Twentieth Street and Constitution
Avenue NW.
Another half dozen of their peers had already left their homes in nearby
Georgetown or some other Washington suburb and they too are making
their way to the same address for the all-important 9 A.M. meeting.
Only one of these bureaucrats—the chairman, a mild-mannered former
professor—might have been recognized in an American airport. The rest—
unelected, immune to political pressure, mostly academics, and save one,
inexperienced in the intricacies of running a major corporation, or even a
small business—were virtually invisible outside the narrow world they
inhabited despite the enormous power they wielded.
As these seventeen people arrived, they stowed their coats and
umbrellas, grabbed a cup of coffee or tea, and mingled, the low hum of their
conversation perhaps more subdued than on similar occasions. The day
before, the first of the two-day affair, had been extraordinary in both the
dire picture it painted of the American economy and the realization that
they would have to take bold and unprecedented action.
That next sleety morning, they met again, determined to take action to
prop up a faltering Wall Street, hopelessly mired in the greatest financial
crisis since the Great Depression. Even as they convened, the wreckage of
the previous three months still burned around them. Credit markets had
seized up and fears for the fate of the economy were mounting.
With a few exceptions, virtually all of those at the meeting were PhD
economists who had earned doctorates at MIT, Yale, Harvard, Princeton,
and other top American universities. They met under the auspices of the
Federal Open Market Committee (FOMC), the decision-making body of the
Federal Reserve System. They believed a lifetime of study in economic
theory and monetary policy had given them unique insight to steer policy
for the most powerful central bank in the world, the lender of last resort for
failing Wall Street banks, and the U.S. government’s last line of defense
against utter financial chaos.
Created in 1913 after the Panic of 1907, the Federal Reserve was
founded to keep the public’s faith in the buying power of the U.S. dollar.
After failing miserably in the 1930s, the Fed aimed to be more responsive.
This led the institution to find discipline in the rising macroeconomic
models championed by top monetary theorists. During the ensuing “Quiet
Period” in American banking, deposit insurance prevented panics, the Fed
controlled interest rates and manipulated the money supply, and though
occasional disruptions flared, like the failure of Continental Illinois
National Bank and Trust Company in 1984, no systemic risk erupted for
seventy years. The Fed had tamed the volatile U.S. economy.
Until September 2008, when all hell broke loose in a worldwide panic
that completely blindsided and, embarrassed the Federal Reserve. The Fed
had used billions of dollars in taxpayer funds to bail out Wall Street fat cats.
Everyone blamed the Fed.

Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America by Danielle DiMartino Booth