By Neil Patrick
I get really cross when I read pronouncements from regulators and bankers about the recession. The members of both groups are securely cosseted from actually feeling any of the real effects themselves. And each blames the other for the crisis. Regulators blame poor bank governance, bankers cite excessive and disruptive government interventions.
I believe both are right actually. It’s not rocket science to work out that these are not mutually exclusive. One does not preclude the other.
It’s actually a rather cosy mutual support mechanism, enabling each to pass responsibility to the other, whilst happily continuing to pursue their own self-interest.
But we need to look forwards not just backwards to restore growth to the US.
On Sunday, the former Federal Reserve Vice Chair, Roger Ferguson admitted the US economy is still suffering "lingering effects" from the financial crisis. Growth he said was too "modest" to bring down unemployment or increase labor force participation at a satisfactory pace.
(Well said Roger; we hadn’t actually noticed that).
We need to remind you who the bad people are (and that’s not us).
Of course, Ferguson did not offer any monetary or fiscal policy prescriptions for accelerating economic growth as he accepted the National Association for Business Economics' annual Adam Smith Award. Instead, he focused on the need to restore public trust in the financial sector and to improve corporate governance.
(That’s right Roger, this recession has nothing to do with out of control government debt, it’s those greedy heartless bankers we need to blame).
Ferguson has been mentioned as a possible successor to Ben Bernanke. Currently president and CEO of financial services firm TIAA-CREF, Ferguson told the NABE's annual meeting "we have continued on a path of modest growth in the U.S., and while we all would wish for more, it is a far better scenario than we might have imagined five years ago today."
(That’s really great news Roger, thanks).
Of course we cannot risk upsetting the (massively overvalued) equities markets…
He also said the "still-modest growth" pace - 2.5% in the second quarter but less than 2% so far in the third quarter - should not be viewed as acceptable. He said, “it serves as a reminder that today, five years on from some of the darkest days of the financial crisis, we continue to deal with its lingering effects."
"The unemployment rate remains stubbornly high and labor force participation low. The markets have been volatile in the face of concerns about the Fed's tapering plans."
…much better to continue devaluing the dollar
Although he mentioned concerns about the Fed "tapering" its large-scale asset purchases, Ferguson did not say how he thinks the Fed should proceed in scaling back its $85 billion a month in "quantitative easing" or how monetary policy could be applied to stimulate growth.
Rather, he said "it would be wise to turn our collective energies to ensuring that we never have to endure a crisis like that again."
(That’s right Roger, we need lots more regulation to ensure we only get the right sort of growth).
And the solution is…lots more regulation
Although reams of financial service regulations have been implemented in connection with the Dodd-Franks Act, with more to come, Ferguson said "they are not enough."
(No that’s right Roger, our financial institutions need lots more government bureaucracy to make sure they cannot ever again become a burden to the government but only fill the government coffers with lots of ‘good’ money).
"It's equally important to further improve corporate governance at financial firms," he said. "We need stronger and more effective corporate governance approaches, particularly at the institutions that have been deemed systemically important.
The need for better "governance" in the financial services industry is underscored by what he called "a widespread lack of trust" in financial firms and by Americans' "angst" over their retirement prospects.
(Erm…isn’t that the same lack of trust that people have for politicians and regulators Roger?)
Ferguson said "it's vital that Americans regain trust in the financial services industry, because the industry is simply too important to our economy and our global competitiveness to be looked on so warily by so many people."
(That’s right Roger, we need lots more regulation to ensure we only get the right sort of growth).
And the solution is…lots more regulation
Although reams of financial service regulations have been implemented in connection with the Dodd-Franks Act, with more to come, Ferguson said "they are not enough."
(No that’s right Roger, our financial institutions need lots more government bureaucracy to make sure they cannot ever again become a burden to the government but only fill the government coffers with lots of ‘good’ money).
"It's equally important to further improve corporate governance at financial firms," he said. "We need stronger and more effective corporate governance approaches, particularly at the institutions that have been deemed systemically important.
The need for better "governance" in the financial services industry is underscored by what he called "a widespread lack of trust" in financial firms and by Americans' "angst" over their retirement prospects.
(Erm…isn’t that the same lack of trust that people have for politicians and regulators Roger?)
Ferguson said "it's vital that Americans regain trust in the financial services industry, because the industry is simply too important to our economy and our global competitiveness to be looked on so warily by so many people."
In saying "weak corporate governance" lay at the root of the financial crisis, Ferguson was referring to, among other things, commercial banks' increased "involvement in risky trading activities; growth in securitized credit; increased leverage; failure of banks to manage financial risks; inadequate capital buffers, and a misplaced reliance on complex math and credit ratings in assessing risk."
(I accept these are huge failings, but if you constantly point them out to the media, how will that help restore the much needed trust you talk about?).
We’ll tell you how to run your business
Ferguson highlighted recommendations of the Group of 30, an international forum of public- and private-sector financial leaders of which he is a member:
"First, we urge boards to take a long-term view that encourages long-term value creation in the interest of shareholders ... "Second, we urge management to model the right kind of behavior and to support a culture that promotes long-term thinking, discipline, sound risk management, and accountability ...
"Third, we urge regulators and supervisors to take a broader view of their roles, one that includes understanding the overall business, strategy, people, and culture of the firms they oversee ...
(Well said Roger…even though this is the only new and constructive thing I’ve heard you say).
"And finally, we urge long-term shareholders to use their influence to keep companies honest about performance and focused on improving governance."
I apologise for my mockery of Mr Ferguson,but…
Actually I am being hard on Mr Ferguson here. But he's more than big enough to take it I think and he's the one winning the awards not me. I think most of the things he describes are good aspirations. But great vision is one thing, effective execution is totally another. And little of the above actually helps solve the problem that is slowly killing the US every day it continues.
We need at least as much focus on driving an equitable recovery and household income growth as we do on looking backwards and learning the lessons of the past. And that means a really constructive dialogue between government and business, not just a witch hunt and lots more regulators and rules.
(I accept these are huge failings, but if you constantly point them out to the media, how will that help restore the much needed trust you talk about?).
We’ll tell you how to run your business
Ferguson highlighted recommendations of the Group of 30, an international forum of public- and private-sector financial leaders of which he is a member:
"First, we urge boards to take a long-term view that encourages long-term value creation in the interest of shareholders ... "Second, we urge management to model the right kind of behavior and to support a culture that promotes long-term thinking, discipline, sound risk management, and accountability ...
"Third, we urge regulators and supervisors to take a broader view of their roles, one that includes understanding the overall business, strategy, people, and culture of the firms they oversee ...
(Well said Roger…even though this is the only new and constructive thing I’ve heard you say).
"And finally, we urge long-term shareholders to use their influence to keep companies honest about performance and focused on improving governance."
I apologise for my mockery of Mr Ferguson,but…
Actually I am being hard on Mr Ferguson here. But he's more than big enough to take it I think and he's the one winning the awards not me. I think most of the things he describes are good aspirations. But great vision is one thing, effective execution is totally another. And little of the above actually helps solve the problem that is slowly killing the US every day it continues.
We need at least as much focus on driving an equitable recovery and household income growth as we do on looking backwards and learning the lessons of the past. And that means a really constructive dialogue between government and business, not just a witch hunt and lots more regulators and rules.
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