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The Lords of Easy Money: How the Federal Reserve Broke the American Economy
The New York Times bestseller from business journalist Christopher Leonard infiltrates one of America’s most mysterious institutions—the Federal Reserve—to show how its policies spearheaded by Chairman Jerome Powell over the past ten years have accelerated income inequality and put our country’s economic stability at risk.
If you asked most people what forces led to today’s unprecedented income inequality and financial crashes, no one would say the Federal Reserve. For most of its history, the Fed has enjoyed the fawning adoration of the press. When the economy grew, it was credited to the Fed. When the economy imploded in 2008, the Fed got credit for rescuing us.
But here, for the first time, is the inside story of how the Fed has reshaped the American economy for the worse. It all started on November 3, 2010, when the Fed began a radical intervention called quantitative easing. In just a few short years, the Fed more than quadrupled the money supply with one goal: to encourage banks and other investors to extend more risky debt. Leaders at the Fed knew that they were undertaking a bold experiment that would produce few real jobs, with long-term risks that were hard to measure. But the Fed proceeded anyway…and then found itself trapped. Once it printed all that money, there was no way to withdraw it from circulation. The Fed tried several times, only to see the market start to crash, at which point the Fed turned the money spigot back on. That’s what it did when COVID hit, printing 300 years’ worth of money in a few short months.
Which brings us to now: Ten years on, the gap between the rich and poor has grown dramatically, inflation is raging, and the stock market is driven by boom, busts, and bailouts. Middle-class Americans seem stuck in a stage of permanent stagnation, with wage gains wiped out by high prices even as they remain buried under credit card debt, car loan debt, and student debt. Meanwhile, the “too big to fail” banks remain bigger and more powerful than ever while the richest Americans enjoy the gains of a hyper-charged financial system.
The Lords of Easy Money “skillfully” (The Wall Street Journal) tells the “fascinating” (The New York Times) tale of how quantitative easing is imperiling the American economy through the story of the one man who tried to warn us. This is the first inside story of how we really got here—and why our economy rests on such unstable ground.
If you asked most people what forces led to today’s unprecedented income inequality and financial crashes, no one would say the Federal Reserve. For most of its history, the Fed has enjoyed the fawning adoration of the press. When the economy grew, it was credited to the Fed. When the economy imploded in 2008, the Fed got credit for rescuing us.
But here, for the first time, is the inside story of how the Fed has reshaped the American economy for the worse. It all started on November 3, 2010, when the Fed began a radical intervention called quantitative easing. In just a few short years, the Fed more than quadrupled the money supply with one goal: to encourage banks and other investors to extend more risky debt. Leaders at the Fed knew that they were undertaking a bold experiment that would produce few real jobs, with long-term risks that were hard to measure. But the Fed proceeded anyway…and then found itself trapped. Once it printed all that money, there was no way to withdraw it from circulation. The Fed tried several times, only to see the market start to crash, at which point the Fed turned the money spigot back on. That’s what it did when COVID hit, printing 300 years’ worth of money in a few short months.
Which brings us to now: Ten years on, the gap between the rich and poor has grown dramatically, inflation is raging, and the stock market is driven by boom, busts, and bailouts. Middle-class Americans seem stuck in a stage of permanent stagnation, with wage gains wiped out by high prices even as they remain buried under credit card debt, car loan debt, and student debt. Meanwhile, the “too big to fail” banks remain bigger and more powerful than ever while the richest Americans enjoy the gains of a hyper-charged financial system.
The Lords of Easy Money “skillfully” (The Wall Street Journal) tells the “fascinating” (The New York Times) tale of how quantitative easing is imperiling the American economy through the story of the one man who tried to warn us. This is the first inside story of how we really got here—and why our economy rests on such unstable ground.
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First published January 11, 2022
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February 21, 2022
This is a very hard review for me to write. I am a great admirer of Chris Leonard. I thought Kochland was a tour de force. I generally agree that monetary interventions have distorting effects that help the investor class far more than the ordinary person. And yet this book is in my view so blind to the causes of our present economic dysfunction that it just severely misses the mark.
It begins as the biography of Tom Hoenig that I didn't know I didn't want. There's nothing particularly interesting about the Hoenig on display here, nor are the ideas told through him sound. Hoenig is an interesting financial regulator, but this book completely, depressingly avoids the financial regulatory function of the Federal Reserve, focusing almost entirely on open market operations.
When Hoenig leaves the Kansas City Fed, he had this monumental fight with the Federal Reserve over living wills, which could have been used to unwind the biggest banks. It was a policy fight that showed where the Fed's sympathies lied. It's completely absent here, despite being aligned with the thesis and also *the most important policy matter of Hoenig's career.*
The whole book is like that: so myopic, so dismissive of alternative explanations or separate causes of the issues it covers, that it's hard to take seriously. The housing bubble was a fraud story; Leonard preposterously presents it as a monetary policy story. The signature anecdote, involving Rexnord, was a private equity-owned firm since the 1980s, back when QE only referred to a monarch. Private equity became a big problem in this country after institutional money was allowed to flow into alternative investment strategies following the National Securities Markets Improvement Act of 1996; that goes unmentioned.
I just don't buy the argument, even as I really believe that monetary interventions on their own largely benefit the rich. It's a reductive book that leads to a conclusion that would improve nothing. The problem of shadow banking is a regulatory problem. The problem of asset inflation is a regulatory problem. There is just too much missing here to recommend.
It begins as the biography of Tom Hoenig that I didn't know I didn't want. There's nothing particularly interesting about the Hoenig on display here, nor are the ideas told through him sound. Hoenig is an interesting financial regulator, but this book completely, depressingly avoids the financial regulatory function of the Federal Reserve, focusing almost entirely on open market operations.
When Hoenig leaves the Kansas City Fed, he had this monumental fight with the Federal Reserve over living wills, which could have been used to unwind the biggest banks. It was a policy fight that showed where the Fed's sympathies lied. It's completely absent here, despite being aligned with the thesis and also *the most important policy matter of Hoenig's career.*
The whole book is like that: so myopic, so dismissive of alternative explanations or separate causes of the issues it covers, that it's hard to take seriously. The housing bubble was a fraud story; Leonard preposterously presents it as a monetary policy story. The signature anecdote, involving Rexnord, was a private equity-owned firm since the 1980s, back when QE only referred to a monarch. Private equity became a big problem in this country after institutional money was allowed to flow into alternative investment strategies following the National Securities Markets Improvement Act of 1996; that goes unmentioned.
I just don't buy the argument, even as I really believe that monetary interventions on their own largely benefit the rich. It's a reductive book that leads to a conclusion that would improve nothing. The problem of shadow banking is a regulatory problem. The problem of asset inflation is a regulatory problem. There is just too much missing here to recommend.
January 16, 2022
Handling a difficult and complex subject material, I thought this book did an excellent job of explaining concepts in a way that is comprehensible to most readers.
The overall point of the book is quite simple: the Federal Reserve has sleepwalked into a quantitative easing (QE) trap of large-scale interventions (bailing out the market) that it now can't get out of without letting markets collapse. A handful of economists foresaw this trap, but they were not listened to because of political pressures and the momentum of the Fed Chairman at the time. Ben Bernanke was revered from his '08 rescue plan, and his insistence on the continuation of QE after the immediate crisis had already passed was backed up by sophisticated projections from the most respected "experts." Now in hindsight, those expert projections were wildly incorrect.
Thomas Hoenig, the lone dissenting vote against QE2 in 2010, is profiled in detail throughout the book. Hoenig and other economists opposed to more QE were ostracized in much the same way as the outsiders who foresaw the 2008 housing bubble were. The main difference between the '08 housing bubble and the Fed's QE quagmire is that the latter has taken more than a decade to clearly materialize. Now we see clearly the effects that wild asset inflation has had on wealth inequality - which is only going to be further exacerbated if consumer prince inflation continues to outpace wage gains in the coming months and years.
The jury is still out on what the future holds, but the current state of markets and the regular far-reaching interventions the Fed takes on a routine basis to prevent financial calamity lends credence to Leonard's central point: that the system has been fundamentally broken. Anyone interested in economic policy and income inequality will most likely find this book fascinating and indispensable. The debate around monetary policy transcends traditional political lines, and I believe it's in the interest of everyone to more accurately understand monetary policy and its consequences. For that reason, I highly recommend this book.
The overall point of the book is quite simple: the Federal Reserve has sleepwalked into a quantitative easing (QE) trap of large-scale interventions (bailing out the market) that it now can't get out of without letting markets collapse. A handful of economists foresaw this trap, but they were not listened to because of political pressures and the momentum of the Fed Chairman at the time. Ben Bernanke was revered from his '08 rescue plan, and his insistence on the continuation of QE after the immediate crisis had already passed was backed up by sophisticated projections from the most respected "experts." Now in hindsight, those expert projections were wildly incorrect.
Thomas Hoenig, the lone dissenting vote against QE2 in 2010, is profiled in detail throughout the book. Hoenig and other economists opposed to more QE were ostracized in much the same way as the outsiders who foresaw the 2008 housing bubble were. The main difference between the '08 housing bubble and the Fed's QE quagmire is that the latter has taken more than a decade to clearly materialize. Now we see clearly the effects that wild asset inflation has had on wealth inequality - which is only going to be further exacerbated if consumer prince inflation continues to outpace wage gains in the coming months and years.
The jury is still out on what the future holds, but the current state of markets and the regular far-reaching interventions the Fed takes on a routine basis to prevent financial calamity lends credence to Leonard's central point: that the system has been fundamentally broken. Anyone interested in economic policy and income inequality will most likely find this book fascinating and indispensable. The debate around monetary policy transcends traditional political lines, and I believe it's in the interest of everyone to more accurately understand monetary policy and its consequences. For that reason, I highly recommend this book.
February 11, 2022
Christopher Leonard’s The Lords of Easy Money may be an important book. After all, Leonard’s premise, “How the Federal Reserve Broke the American Economy,” is a significant stake in the ground. Important, possibly yes. Engrossing or enjoyable, not for me. Throughout, my reading was slow-going, a slog for three reasons.
First, Leonard’s story is repetitive. Over decades, an economic crisis arises…the Fed stimulates the economy…a crisis arises…the Fed stimulates… Of course, the repetition underscores Leonard’s point: The Fed, using continually expanding, untried techniques, has created a repetition loop that is inescapable and destructive to the economy; however, after a while, the recurring loop becomes a drag for the reader. The Fed’s actions do differ from crisis to crisis, but in Leonard’s telling, those repetitive actions wore me down, arousing boredom, not enjoyment.
Second, Leonard employs an oft-used approach to make technical information come alive; he focuses on a few characters to tell his story, hoping to dramatize and humanize the tale. Two of those characters are significant players at the Federal Reserve, Thomas Hoenig and Jerome Powell. Both men are capable, intelligent, and principled, but they are not dramatic characters by nature. Certainly, they are important, central characters to Leonard’s story, but they fail to liven that story.
My third critique: I ask does Leonard have full command of his subject? There are places where he wanders into confusion on a topic, or contradicts himself, or is inaccurate. I’ll give a few examples while admitting I know little about economics. If an economist reads my comments and disagrees, I will welcome the correction.
Consider how Leonard first compares hawks and doves (p.16): “It was the doves inside the Fed who argued for more aggressive intervention and it was the hawks who tried to limit the Fed’s reach.” Intervention is not a significant differentiator between hawks and doves, especially in an initial definition; you could argue both hawks and doves intervene from time to time, just with different goals.
Consider how Leonard explains risky investments (p. 20): In a zero percent interest environment, he says a bank is forced “…to search for earnings out there in the risky wilderness. A riskier loan might pay a higher interest rate, or a higher ‘yield,’ as the bankers call it. When banks start hunting for yield, they are moving their cash further out on the yield curve, as they say, into the riskier investments.”
Here, Leonard uses the yield curve to explain risk incorrectly. At a point in time, numerous factors make one investment riskier than another; you don’t use a yield curve to determine differing risks between say a Treasury bond and a corporate bond from a shady, unreliable company. Instead, when Leonard talks about the search for risky investments, he doesn’t seem to understand that the yield curve focuses on fixed income securities with similar credit quality having different yields because those securities have different maturity dates. A yield curve plots yield as it varies over time; the curve does not plot different risks between disparate investments.
Consider this explanation on bond price fluctuations (p. 156): “The price of a bond can go up and down like a stock. (A bond price is usually expressed in terms of how likely the borrower is to repay. A good bond might be trading at 95 cents on the dollar, meaning there is an expectation that the bond will be paid back nearly in full.)” Leonard doesn't seem to understand pricing or price fluctuation. Yes, risk affects bond pricing, but the fluctuating changes in a bond’s price mainly reflect the bond’s yield compared with prevailing interest rates. The price changes so the yield, which moves inversely to price, is competitive in the marketplace.
Back to my point. I’ve belabored my concern about confusing ideas and inaccuracies because early on I lost faith in Leonard’s reporting. I wasn’t sure I was getting the correct story. As I say, the fault could be my own misunderstanding, but numerous sentences like those I’ve mentioned spoiled my reading enjoyment.
To summarize, The Lords of Easy Money was a letdown for me. Leonard has addressed an important subject, and he argues his case forcefully. That said, the repetitive narrative, the uninspiring central characters, and the sketchy definitions undercut his ability to persuade. The book was a disappointment.
First, Leonard’s story is repetitive. Over decades, an economic crisis arises…the Fed stimulates the economy…a crisis arises…the Fed stimulates… Of course, the repetition underscores Leonard’s point: The Fed, using continually expanding, untried techniques, has created a repetition loop that is inescapable and destructive to the economy; however, after a while, the recurring loop becomes a drag for the reader. The Fed’s actions do differ from crisis to crisis, but in Leonard’s telling, those repetitive actions wore me down, arousing boredom, not enjoyment.
Second, Leonard employs an oft-used approach to make technical information come alive; he focuses on a few characters to tell his story, hoping to dramatize and humanize the tale. Two of those characters are significant players at the Federal Reserve, Thomas Hoenig and Jerome Powell. Both men are capable, intelligent, and principled, but they are not dramatic characters by nature. Certainly, they are important, central characters to Leonard’s story, but they fail to liven that story.
My third critique: I ask does Leonard have full command of his subject? There are places where he wanders into confusion on a topic, or contradicts himself, or is inaccurate. I’ll give a few examples while admitting I know little about economics. If an economist reads my comments and disagrees, I will welcome the correction.
Consider how Leonard first compares hawks and doves (p.16): “It was the doves inside the Fed who argued for more aggressive intervention and it was the hawks who tried to limit the Fed’s reach.” Intervention is not a significant differentiator between hawks and doves, especially in an initial definition; you could argue both hawks and doves intervene from time to time, just with different goals.
Consider how Leonard explains risky investments (p. 20): In a zero percent interest environment, he says a bank is forced “…to search for earnings out there in the risky wilderness. A riskier loan might pay a higher interest rate, or a higher ‘yield,’ as the bankers call it. When banks start hunting for yield, they are moving their cash further out on the yield curve, as they say, into the riskier investments.”
Here, Leonard uses the yield curve to explain risk incorrectly. At a point in time, numerous factors make one investment riskier than another; you don’t use a yield curve to determine differing risks between say a Treasury bond and a corporate bond from a shady, unreliable company. Instead, when Leonard talks about the search for risky investments, he doesn’t seem to understand that the yield curve focuses on fixed income securities with similar credit quality having different yields because those securities have different maturity dates. A yield curve plots yield as it varies over time; the curve does not plot different risks between disparate investments.
Consider this explanation on bond price fluctuations (p. 156): “The price of a bond can go up and down like a stock. (A bond price is usually expressed in terms of how likely the borrower is to repay. A good bond might be trading at 95 cents on the dollar, meaning there is an expectation that the bond will be paid back nearly in full.)” Leonard doesn't seem to understand pricing or price fluctuation. Yes, risk affects bond pricing, but the fluctuating changes in a bond’s price mainly reflect the bond’s yield compared with prevailing interest rates. The price changes so the yield, which moves inversely to price, is competitive in the marketplace.
Back to my point. I’ve belabored my concern about confusing ideas and inaccuracies because early on I lost faith in Leonard’s reporting. I wasn’t sure I was getting the correct story. As I say, the fault could be my own misunderstanding, but numerous sentences like those I’ve mentioned spoiled my reading enjoyment.
To summarize, The Lords of Easy Money was a letdown for me. Leonard has addressed an important subject, and he argues his case forcefully. That said, the repetitive narrative, the uninspiring central characters, and the sketchy definitions undercut his ability to persuade. The book was a disappointment.
January 27, 2022
This book is extraordinary — doesn’t hide behind jargon, is very detailed but reads so well.
I learnt new stuff, corrected a few things I had misunderstood and had a lot of fun reading.
I was kinda wary in the first few chapters (reckon I thought because it was so simple yet written with conviction. So it must be reductive, right). But Grant’s Yield says it has no technical flaws.
I learnt new stuff, corrected a few things I had misunderstood and had a lot of fun reading.
I was kinda wary in the first few chapters (reckon I thought because it was so simple yet written with conviction. So it must be reductive, right). But Grant’s Yield says it has no technical flaws.
May 30, 2022
Presents a story that features only villains, non-entities, and average people doing average people things as if it was a story of the great heroism of one central banker, who is certainly no more heroic or interesting than any other central banker. Extremely easy to read, but that's about it. .
February 9, 2022
When I first became aware of the stock market in 1960, the Dow Jones Industrial Average stood at 679. By the beginning of 2022, the index had topped 36,000. Even discounting inflation, today’s Dow Jones average is five and a half times as high as it was just over 60 years ago. Of course, economic growth accounts for a substantial portion of that increase. But the government’s easy money policies over the past decade have been even more important. The years since the Great Recession of 2007-9 have seen nearly two-thirds of the increase. But, as Christopher Leonard takes pains to point out in The Lords of Easy Money, the central question to ask about this explosive rise is what lawyers are taught to ask: Who benefits? And, unless you have substantial holdings in the stock market or real estate, the answer to that question is, Not us.
SETTING THE STAGE FOR TODAY’S VOLATILE SECURITIES MARKETS
Leonard sketches out the historical circumstances that led to the Great Recession. Focusing on the Federal Reserve, America’s central bank, he describes the draconian measures Fed Chairman Paul Volcker (1927-2019) used to break the back of inflation in the early 1980s. He then follows Volcker’s successor, Alan Greenspan (1926-), through the two decades of his chairmanship (1987-2006). Greenspan’s policies, as the man himself admitted, lay the groundwork for the Great Recession. But the focus in The Lords of Easy Money is squarely on developments within the Fed after the Great Recession. Among the central figures in the book are Greenspan’s three immediate successors: Ben Bernanke, Janet Yellen, and Jerome Powell. But the hero, if that word isn’t too much of a stretch, is a retired member of the policy-making Federal Open Market Committee (FOMC), Thomas Hoenig.
TWO RISKY POLICIES
The central thesis of this book is straightforward. During the Great Recession and the years that followed, the Federal Reserve Board adopted unprecedented policies that drowned the US economy in a tidal flood of cash. They did so in two ways, which represented the major components of the easy money policies of the 2010s. First, by dropping the ground-floor interest rate nearly to zero and keeping it there. This policy lasted so long that it even acquired an acronym: ZIRP, for Zero Interest Rate Policy. And, second, by engaging in quantitative easing (QE), which committed the Fed to purchase large quantities of bonds; the effect of this policy was to increase further—and dramatically so—the cash balances held by the nation’s major banks.
For many years, one man who served from time to time on the Federal Open Market Committee stood opposed to these policies. Thomas Hoenig (1946-), President of the Federal Reserve Bank of Kansas City, was often a lonely voice, one vote out of twelve. It’s worth quoting Leonard at length to understand why.
WHY TOM HOENIG OPPOSED THESE POLICIES
“Hoenig was fighting against quantitative easing because he knew that it would create historically huge amounts of money, and this money would be delivered first to the big banks on Wall Street. He believed that this money would widen the gap between the very rich and everybody else. It would benefit a very small group of people who owned assets, and it would punish the very large group of people who lived on paychecks and tried to save money. Just as important, this tidal wave of money would encourage every entity on Wall Street to adopt riskier and riskier behavior in a world of cheap debt and heavy lending, potentially creating exactly the kind of ruinous financial bubble that had caused the Global Financial Crisis in the first place.” Many commentators misinterpreted Hoenig’s views as knee-jerk fear of inflation. But that was not a major consideration for him.
Leonard adds, “As it turned out, Hoenig was almost entirely correct in his concerns and his predictions. . . Understanding what the Fed did in November 2010 is the key to understanding the very strange economic decade that followed, when asset prices soared, the stock market boomed, and the American middle class fell further behind.”
WHERE DID ALL THOSE TRILLIONS GO?
In Davos Man: How the Billionaires Devoured the World, investigative journalist Peter S. Goodman describes the outcome of these policies more dramatically: “In the decade following the financial crisis, the companies that made up the S&P 500, a broad swath of the American stock market, spent $5.3 trillion—or more than half their profits—to buy back their stock, sending their share prices higher. They spent another $3.8 trillion on handing out dividends. Over the course of those ten years, the wealth of American billionaires increased by more than 80 percent. Meanwhile, the vast majority of Americans were still waiting for the recovery.”
SURPRISINGLY, A READABLE ACCOUNT
Few topics are as boring to the general reader as economic policy. Like contemporary specialists in every field, economists and bankers have a language all their own. When they speak or write about their work, they’re likely to confuse much more than they elucidate. The jargon is often impenetrable. But Christopher Leonard is used to it. In years of reporting on business and economics, he has gained remarkable skill at translating even the most obscure argot into lucid English. At times, the policies involved are so complex that even he (and the reader) falter. Still, nearly throughout, The Lords of Easy Money is remarkably readable. If you want to get a handle on the pivotal role the Federal Reserve Board holds in the world’s economic affairs, this book will do the trick for you.
ABOUT THE AUTHOR
The Lords of Easy Money is Christopher Leonard‘s third book. His previous books were The Meat Racket and Kochland: The Secret History of Koch Industries and Corporate Power in America. An investigative journalist, Leonard is a graduate of the University of Missouri Journalism School. He currently serves as director of the Missouri School of Journalism Reynolds Journalism Institute.
SETTING THE STAGE FOR TODAY’S VOLATILE SECURITIES MARKETS
Leonard sketches out the historical circumstances that led to the Great Recession. Focusing on the Federal Reserve, America’s central bank, he describes the draconian measures Fed Chairman Paul Volcker (1927-2019) used to break the back of inflation in the early 1980s. He then follows Volcker’s successor, Alan Greenspan (1926-), through the two decades of his chairmanship (1987-2006). Greenspan’s policies, as the man himself admitted, lay the groundwork for the Great Recession. But the focus in The Lords of Easy Money is squarely on developments within the Fed after the Great Recession. Among the central figures in the book are Greenspan’s three immediate successors: Ben Bernanke, Janet Yellen, and Jerome Powell. But the hero, if that word isn’t too much of a stretch, is a retired member of the policy-making Federal Open Market Committee (FOMC), Thomas Hoenig.
TWO RISKY POLICIES
The central thesis of this book is straightforward. During the Great Recession and the years that followed, the Federal Reserve Board adopted unprecedented policies that drowned the US economy in a tidal flood of cash. They did so in two ways, which represented the major components of the easy money policies of the 2010s. First, by dropping the ground-floor interest rate nearly to zero and keeping it there. This policy lasted so long that it even acquired an acronym: ZIRP, for Zero Interest Rate Policy. And, second, by engaging in quantitative easing (QE), which committed the Fed to purchase large quantities of bonds; the effect of this policy was to increase further—and dramatically so—the cash balances held by the nation’s major banks.
For many years, one man who served from time to time on the Federal Open Market Committee stood opposed to these policies. Thomas Hoenig (1946-), President of the Federal Reserve Bank of Kansas City, was often a lonely voice, one vote out of twelve. It’s worth quoting Leonard at length to understand why.
WHY TOM HOENIG OPPOSED THESE POLICIES
“Hoenig was fighting against quantitative easing because he knew that it would create historically huge amounts of money, and this money would be delivered first to the big banks on Wall Street. He believed that this money would widen the gap between the very rich and everybody else. It would benefit a very small group of people who owned assets, and it would punish the very large group of people who lived on paychecks and tried to save money. Just as important, this tidal wave of money would encourage every entity on Wall Street to adopt riskier and riskier behavior in a world of cheap debt and heavy lending, potentially creating exactly the kind of ruinous financial bubble that had caused the Global Financial Crisis in the first place.” Many commentators misinterpreted Hoenig’s views as knee-jerk fear of inflation. But that was not a major consideration for him.
Leonard adds, “As it turned out, Hoenig was almost entirely correct in his concerns and his predictions. . . Understanding what the Fed did in November 2010 is the key to understanding the very strange economic decade that followed, when asset prices soared, the stock market boomed, and the American middle class fell further behind.”
WHERE DID ALL THOSE TRILLIONS GO?
In Davos Man: How the Billionaires Devoured the World, investigative journalist Peter S. Goodman describes the outcome of these policies more dramatically: “In the decade following the financial crisis, the companies that made up the S&P 500, a broad swath of the American stock market, spent $5.3 trillion—or more than half their profits—to buy back their stock, sending their share prices higher. They spent another $3.8 trillion on handing out dividends. Over the course of those ten years, the wealth of American billionaires increased by more than 80 percent. Meanwhile, the vast majority of Americans were still waiting for the recovery.”
SURPRISINGLY, A READABLE ACCOUNT
Few topics are as boring to the general reader as economic policy. Like contemporary specialists in every field, economists and bankers have a language all their own. When they speak or write about their work, they’re likely to confuse much more than they elucidate. The jargon is often impenetrable. But Christopher Leonard is used to it. In years of reporting on business and economics, he has gained remarkable skill at translating even the most obscure argot into lucid English. At times, the policies involved are so complex that even he (and the reader) falter. Still, nearly throughout, The Lords of Easy Money is remarkably readable. If you want to get a handle on the pivotal role the Federal Reserve Board holds in the world’s economic affairs, this book will do the trick for you.
ABOUT THE AUTHOR
The Lords of Easy Money is Christopher Leonard‘s third book. His previous books were The Meat Racket and Kochland: The Secret History of Koch Industries and Corporate Power in America. An investigative journalist, Leonard is a graduate of the University of Missouri Journalism School. He currently serves as director of the Missouri School of Journalism Reynolds Journalism Institute.
March 24, 2022
I don't know if this book is supposed to be an biography to set Tom Hoenig's legacy, or a take down of Jay Powel, or just a rant against the system... it's all over the place trying to set a human narrative to walk through the events around the Fed of the last two decades. My biggest complaint is that it is too slanted... not just that the author has an opinion of events around monetary policy, but that he mostly skips presenting the other side. The result is a disappointing book that was clearly well researched and could have been so much better.
January 26, 2023
Excellent explanation of a very complicated and important situation. This book taught me what the Fed has been doing to basically cover up the excesses of some very bad government policies, in addition to the unfortunate circumstances resulting from covid.
It gets dense at times but is mostly very clear and definitely eye-opening.
My conclusion: the Fed was meant to be an apolitical force to buffer extremes in the market. It has turned into a bunch of banker & Treasury department living buddies who pander to Big Government powers and Wall Street.
It gets dense at times but is mostly very clear and definitely eye-opening.
My conclusion: the Fed was meant to be an apolitical force to buffer extremes in the market. It has turned into a bunch of banker & Treasury department living buddies who pander to Big Government powers and Wall Street.
Read
August 10, 2022Just a simpleton trying to learn a bit about the Fed here! This review will be written in 8th grade book report format.
So, the basic argument is that quantitative easing and low interest rates are making (~stoking~, as they like to say in financial articles) an asset inflation bubble, right? They flood the markets with money and incentivize risky investments. Lots of money means lots to invest, and low interest rates mean you make basically no money - or even lose money - on safer investments). This also means that our economy is sitting on lots and lots of debt, especially corporate debt.
Leonard argues that this all drives inequality, since really only the top of the economy makes any money off asset inflation, and other economic markers, like wages, most notably, are flat.
I think I'd need to read quite a bit more about the Fed - and get some alternative viewpoints - to really be able to ~evaluate~ what Leonard is saying here. He comes down pretty hard on private equity, though, and I'm with him on that one. Screw 'em.
So, the basic argument is that quantitative easing and low interest rates are making (~stoking~, as they like to say in financial articles) an asset inflation bubble, right? They flood the markets with money and incentivize risky investments. Lots of money means lots to invest, and low interest rates mean you make basically no money - or even lose money - on safer investments). This also means that our economy is sitting on lots and lots of debt, especially corporate debt.
Leonard argues that this all drives inequality, since really only the top of the economy makes any money off asset inflation, and other economic markers, like wages, most notably, are flat.
I think I'd need to read quite a bit more about the Fed - and get some alternative viewpoints - to really be able to ~evaluate~ what Leonard is saying here. He comes down pretty hard on private equity, though, and I'm with him on that one. Screw 'em.
June 7, 2022
Every once in a while you'll come across a book that fills in a gap you have about a particular subject and once that gap becomes filled... All of a sudden that subject becomes a lot less fuzzy, imagine your understanding of the subject as the resolution on a TV. Before the book, it has 1980's level of resolution and after reading the book it becomes like 8k resolution. Afterwards you're asking yourself how come you have never seen it like this before? This was my experience for this book.
This is my experience with the FED, the FED has always been mysterious in my understanding of the economy and the role it plays in our lives as American citizens. The only people who paid attention to the FED it seemed like was WallStreet or what I call the fake economy. Millions of Americans do not hang on the FEDS statements but WallStreet listens intently like a wine Mom watching the season finale of the Bachelor. A statement from the FED can send WallStreet into a panic or frenzy, they hang on every word with the same focus and attention they write their Prenups. The FED has serious implications for us all, when the financial markets resemble more of a night out in Vegas at the roulette table than a well structured system, we're all fucked. You can kiss that pension plan goodbye and add another 5-10 years to your retirement when it goes sideways.
Let's get to the substance of the book. The FED has very limited tools in dealing with financial crises, mostly because they're not built to act as a governing body, thats congresses job (or was). Basically the FED can do a few things, 1. It can lower interest rates to stimulate the economy, 2. It can raise interest rates to fight off inflation whether they be price or asset inflation. This historically has been the FEDS only tools like that guy at that bar who only has two pickup lines, it's not much to work with but unlike the guys pick up lines. It can have serious consequences.
By keeping interest rates low, it stimulates investment but also forces investors to put money into riskier bets than they other wise would not have if interest rates were higher. It exponentially raises the probability that investors will invest in deals with low levels of success because of a lower interest rate. It also increases the liquidity in the markets, creating asset bubbles as we saw in 2000's with the dot com crash. Many websites who had no business model what so ever had multi million dollar evaluations despite not making 5% of their evaluation. Interest rates being incredibly low creates the condition of bubbles to arise. It's a small piece of the puzzle.
Now when we get to the financial crises of 2008, the FED adds another element to its tool belt. injecting liquidity into the financial markets through a term called 'Quantitative Easing' or QE. Which means basically, we're going to inject billions of dollars into the markets to stimulate recovery while keeping interest rates low. The FED purchases securities (Securities are fungible and tradable financial instruments used to raise capital in public and private markets. There are primarily three types of securities: equity—which provides ownership rights to holders; debt—essentially loans repaid with periodic payments; and hybrids—which combine aspects of debt and equity). This increases the supply of money which in turn increases lending stimulating investment. The only problem with this is this amount of liquidity does not increase the unemployment rate or the savings of middle class Americans. It benefits the top 1% who can afford to hold assets. Benefits is probably not the right word here as it does not capture whats happening here. People who're holding assets are getting "my maid has a maid" rich. While at the same time people who do not own assets are still struggling during the crisis. This also lays the groundwork for a certain political figure to swoop in and manipulate that anger in terms of disparity of outcomes in the upcoming years.
The other problem with QE is that it injects fragility into the financial markets in ways that are difficult to predict, when the FED is artificially inflating liquidity into the system, it becomes difficult for market participants to understand the real value of some of these assets. It also create the basis for more riskier financial instruments to be used in the markets as free money has flooded the market. These instruments can also make it difficult to assess how much risk the holder of the asset has and if they're even able to cover the loses should something go unexpected. This creates that "To Big too fail" mantra.
Bernake was the head of the FED during the 2008 crash and he pushed for QE and lower interest rates during this time. I am okay with QE during the crisis but QE has not stopped since the crisis. The FED goes onto make more and more interventions in the markets in the years leading up to the pandemic and it becomes obvious that they have completely misunderstood the complexity of their interventions. Now they're constantly putting out fires instead of stabilizing the system because they do not know how to.
Whats interesting about Bernake is that he comes from the Ph.D elk who use their degree in obtuse jargon to win arguments by making the other individual sound like they dont know something about a subject thats could be completely unrelated to the debate at hand. I bring this up because one of the FED members mentions to Benake that companies are using the fact that interest rates are at 0 to take out debt, and then use that debt to buy back their stock prices giving share holders a handsome payday that is completely indifferent to the performance of the business not to mention loads the company with increased debt. Jeopardizing the future of the company for the short term gain of increasing share holder value. This went on for almost the entire 2010's. Bernake used his financial degree and background to run circles around the individual who brought this up. (I just realized I misspelled Bernake but I don't think he deserves that level of care to go and recorrect.)
In 2018 the FED finally tried to raise interest rates but stopped almost immediately. Alarming market behavior had occurred in one area that threatened the stability of the system. The entire market has created the 0% interest rate as its equilibrium and has come to rely on QE, this had made our markets incredibly distorted in terms of pricing and real value. We're entering a weird phase right now with everything being inflated, raising interest rates while inflation is going on creates this weird dynamic where the FED needs to raise interest rates to tackle inflation spurring a recession while inflation is still high.
One thing I take from this situation is that markets have enormous complexity involved in them, do not let these fancy degrees, titles or wealth fool you. Not a single person has certainty in terms of outcome for financial markets today. 2021 was a record year for hedge funds now almost a year later some hedge funds are down over 50%.
Overall this book gave me insight into the FED and how it handles the complexity of the American financial system, make no mistake. They're likely going to cause a serious downturn and again, the wealthiest Americans will benefit creating an ever more fragile democratic environment leading into 2024. The country is a tinder box right now, one candidate could come in and either manipulate that resentment for political gain or address the issues we face in the upcoming years. Will see what happens but I am betting on the former rather than the ladder.
5 Stars.
This is my experience with the FED, the FED has always been mysterious in my understanding of the economy and the role it plays in our lives as American citizens. The only people who paid attention to the FED it seemed like was WallStreet or what I call the fake economy. Millions of Americans do not hang on the FEDS statements but WallStreet listens intently like a wine Mom watching the season finale of the Bachelor. A statement from the FED can send WallStreet into a panic or frenzy, they hang on every word with the same focus and attention they write their Prenups. The FED has serious implications for us all, when the financial markets resemble more of a night out in Vegas at the roulette table than a well structured system, we're all fucked. You can kiss that pension plan goodbye and add another 5-10 years to your retirement when it goes sideways.
Let's get to the substance of the book. The FED has very limited tools in dealing with financial crises, mostly because they're not built to act as a governing body, thats congresses job (or was). Basically the FED can do a few things, 1. It can lower interest rates to stimulate the economy, 2. It can raise interest rates to fight off inflation whether they be price or asset inflation. This historically has been the FEDS only tools like that guy at that bar who only has two pickup lines, it's not much to work with but unlike the guys pick up lines. It can have serious consequences.
By keeping interest rates low, it stimulates investment but also forces investors to put money into riskier bets than they other wise would not have if interest rates were higher. It exponentially raises the probability that investors will invest in deals with low levels of success because of a lower interest rate. It also increases the liquidity in the markets, creating asset bubbles as we saw in 2000's with the dot com crash. Many websites who had no business model what so ever had multi million dollar evaluations despite not making 5% of their evaluation. Interest rates being incredibly low creates the condition of bubbles to arise. It's a small piece of the puzzle.
Now when we get to the financial crises of 2008, the FED adds another element to its tool belt. injecting liquidity into the financial markets through a term called 'Quantitative Easing' or QE. Which means basically, we're going to inject billions of dollars into the markets to stimulate recovery while keeping interest rates low. The FED purchases securities (Securities are fungible and tradable financial instruments used to raise capital in public and private markets. There are primarily three types of securities: equity—which provides ownership rights to holders; debt—essentially loans repaid with periodic payments; and hybrids—which combine aspects of debt and equity). This increases the supply of money which in turn increases lending stimulating investment. The only problem with this is this amount of liquidity does not increase the unemployment rate or the savings of middle class Americans. It benefits the top 1% who can afford to hold assets. Benefits is probably not the right word here as it does not capture whats happening here. People who're holding assets are getting "my maid has a maid" rich. While at the same time people who do not own assets are still struggling during the crisis. This also lays the groundwork for a certain political figure to swoop in and manipulate that anger in terms of disparity of outcomes in the upcoming years.
The other problem with QE is that it injects fragility into the financial markets in ways that are difficult to predict, when the FED is artificially inflating liquidity into the system, it becomes difficult for market participants to understand the real value of some of these assets. It also create the basis for more riskier financial instruments to be used in the markets as free money has flooded the market. These instruments can also make it difficult to assess how much risk the holder of the asset has and if they're even able to cover the loses should something go unexpected. This creates that "To Big too fail" mantra.
Bernake was the head of the FED during the 2008 crash and he pushed for QE and lower interest rates during this time. I am okay with QE during the crisis but QE has not stopped since the crisis. The FED goes onto make more and more interventions in the markets in the years leading up to the pandemic and it becomes obvious that they have completely misunderstood the complexity of their interventions. Now they're constantly putting out fires instead of stabilizing the system because they do not know how to.
Whats interesting about Bernake is that he comes from the Ph.D elk who use their degree in obtuse jargon to win arguments by making the other individual sound like they dont know something about a subject thats could be completely unrelated to the debate at hand. I bring this up because one of the FED members mentions to Benake that companies are using the fact that interest rates are at 0 to take out debt, and then use that debt to buy back their stock prices giving share holders a handsome payday that is completely indifferent to the performance of the business not to mention loads the company with increased debt. Jeopardizing the future of the company for the short term gain of increasing share holder value. This went on for almost the entire 2010's. Bernake used his financial degree and background to run circles around the individual who brought this up. (I just realized I misspelled Bernake but I don't think he deserves that level of care to go and recorrect.)
In 2018 the FED finally tried to raise interest rates but stopped almost immediately. Alarming market behavior had occurred in one area that threatened the stability of the system. The entire market has created the 0% interest rate as its equilibrium and has come to rely on QE, this had made our markets incredibly distorted in terms of pricing and real value. We're entering a weird phase right now with everything being inflated, raising interest rates while inflation is going on creates this weird dynamic where the FED needs to raise interest rates to tackle inflation spurring a recession while inflation is still high.
One thing I take from this situation is that markets have enormous complexity involved in them, do not let these fancy degrees, titles or wealth fool you. Not a single person has certainty in terms of outcome for financial markets today. 2021 was a record year for hedge funds now almost a year later some hedge funds are down over 50%.
Overall this book gave me insight into the FED and how it handles the complexity of the American financial system, make no mistake. They're likely going to cause a serious downturn and again, the wealthiest Americans will benefit creating an ever more fragile democratic environment leading into 2024. The country is a tinder box right now, one candidate could come in and either manipulate that resentment for political gain or address the issues we face in the upcoming years. Will see what happens but I am betting on the former rather than the ladder.
5 Stars.
November 6, 2022
Never imagined any book on monetary policy is remotely readable let along largely engrossing. The book chronicles FED’s policy after the ‘great recession’, with a central figure Thomas Hoenig along with FED governors and officers, finishes in early 2021, when inflation is finally and determinedly on the rise. What next decade would look like? While some points out the missing pieces, aka ‘modern monetary policy’ etc this is a landmark book that introduces me to a subject I would not have thought of investing any interest. A puzzle so enormous in size (many trillions of $$$s) and with global intrigue as FED extended its ‘tentacles’, it’d be interesting to witness what to follow.
March 7, 2022
Most excellent history of the FED.....if you're not pissed off by the end, you weren't paying attention.
July 4, 2022
Spoiler alert: The Fed is the smoking gun.
March 16, 2022
This is a complex subject and for the most part the author deals with it well. It is a pretty good history of policy debates within the Fed on appropriate monetary policy.
Sometime in the last couple of meltdowns the Fed got tasked to create a whole bunch of money - variously called QE (with a number behind it). It focuses on the last couple of Chairs of the Fed especially Powell and Bernanke. The amount of QE was mind boggling - in one stretch the amount equaled 300 years of previous injections to the money supply.
Early in the book Leonard differentiates between ASSET inflation and PRICE inflation. He makes a strong argument that they are different and have substantially different consequences. We can see the effects of price inflation in part because, as we are seeing right now, when we buy something (like gasoline or bread) and the price increases we feel it (you heard the joke about the woman waiting in line for a fast food joint and the cost of her meal was $100 because of the gas she used waiting in line?)
But then there is asset inflation - there are two differences. First, asset inflation is harder to measure. If the price of a stock goes up our your home’s value increases you think you have done something brilliant. The change in price may have some rationality but it may not. Second, asset inflation only affects people who have assets. If you cannot afford to buy a house then the only way you might be affected except when you try to rent a place to live - with an inflated asset the homeowners might think they can charge more for the same dwelling.
The author makes a credible case that all the QE circulating has exacerbated income inequality.
The book starts with a long piece on Thomas Honig who was the Fed President in Kansas City and near the end of his career began to rebel against the clubby atmosphere of the Fed. From my read Bernanke comes off poorly in Leonard’s telling, Yellin a bit better and Powell as a pretty sound player.
His story is far from perfect. For example, Leonard attributes deficits during the Trump administration to tax cuts. He does not argue that part of the problem of deficits came from more spending. But his key message that having the Fed do public policy because the policy apparatus is incapable is spot on.
Sometime in the last couple of meltdowns the Fed got tasked to create a whole bunch of money - variously called QE (with a number behind it). It focuses on the last couple of Chairs of the Fed especially Powell and Bernanke. The amount of QE was mind boggling - in one stretch the amount equaled 300 years of previous injections to the money supply.
Early in the book Leonard differentiates between ASSET inflation and PRICE inflation. He makes a strong argument that they are different and have substantially different consequences. We can see the effects of price inflation in part because, as we are seeing right now, when we buy something (like gasoline or bread) and the price increases we feel it (you heard the joke about the woman waiting in line for a fast food joint and the cost of her meal was $100 because of the gas she used waiting in line?)
But then there is asset inflation - there are two differences. First, asset inflation is harder to measure. If the price of a stock goes up our your home’s value increases you think you have done something brilliant. The change in price may have some rationality but it may not. Second, asset inflation only affects people who have assets. If you cannot afford to buy a house then the only way you might be affected except when you try to rent a place to live - with an inflated asset the homeowners might think they can charge more for the same dwelling.
The author makes a credible case that all the QE circulating has exacerbated income inequality.
The book starts with a long piece on Thomas Honig who was the Fed President in Kansas City and near the end of his career began to rebel against the clubby atmosphere of the Fed. From my read Bernanke comes off poorly in Leonard’s telling, Yellin a bit better and Powell as a pretty sound player.
His story is far from perfect. For example, Leonard attributes deficits during the Trump administration to tax cuts. He does not argue that part of the problem of deficits came from more spending. But his key message that having the Fed do public policy because the policy apparatus is incapable is spot on.
March 13, 2022
The history of the Federal Reserve policy of quantitative easing is showing itself again with an out of control inflation. The author does a great job of explaining the history of Fed policy from 2010 to the present and gives a brief biography of Kansas City Fed president Hoeing to explain Ben Bernanke’s theory of “Quantitive Easing”.
The book goes on to explain that Hoeing opposed such policy because he believed it caused asset bubbles and the misallocation of money by creating negative interest rates rewarding speculators and punishing savers. The book also asserts that the financial policy of easy money created the financial crisis of 2008. Bernanke decided to use his theory to combat high unemployment during a recovering economy.
The Fed has two mandates. Full employment and Price Stability. In order to accomplish these it uses short term interest rates and quantity of money in tha banking system. It also needs the cooperation of policy makers in adjusting fiscal policy. The author assigns blame for the imbalance of means between the rich and the poor to both the political branch for solely relying on monetary policy to avoid crisis and quantitative easing.
Finally, the author does a much better job of explaining the crash of the housing bubble and laying the blame of easy monetary policy rapidly followed by sharp rate increases. The Fed was more worried about price inflation than asset bubbles. KC Fed president Hoeing warned of such a possibility. The book by Michael Lewis completely misses this point in his book “Moneyball”.
February 17, 2022
One of the few monetary policy-themed books I have read that cuts to the chase and avoids getting bogged down in academic verbiage. Lays out a very convincing case on the role the Fed has played, especially since ‘08, in both stoking asset bubbles and extending the gap between the rich and poor.
May 25, 2023
(3.5)
February 9, 2022
Quite a lot of insane things about the current moment make a lot more sense when you consider that the past decade has been an unprecedented experiment in pushing people with piles of money toward riskier and riskier bets. This book does a great job of explaining in very clear language how that experiment came to be.
Read
March 21, 2022Reading some of the most positive reviews, they seem to be from people who really follow finance and markets rather than someone like me who would like to learn more than I know... but not this much more!! It followed in way too much detail for me every little detail of the Federal Open Market Committee. He explained things in a way that was clear, and I picked up a good bit of information, but the term TMI seems highly appropriate here. I suspect this might be one of those books enjoyed most by those who did not really need to read it to learn its contents.
I also never really understood why the main protagonist, followed closely through the first third of the book, which was all I read, was Thomas Hoenig, of whom I confess I had never heard. It even talked about his childhood as the son of a small-town plumbing supply dealer in Iowa.
I also never really understood why the main protagonist, followed closely through the first third of the book, which was all I read, was Thomas Hoenig, of whom I confess I had never heard. It even talked about his childhood as the son of a small-town plumbing supply dealer in Iowa.
October 4, 2022
It’s a biography of a person. Then it’s not. Then it is again. Repeat.
Otherwise, the book gives some insight into the behind the scenes actions of the Fed to inject money into the economy over and over and over and never meet their promise to return to normal. Always bailing out risky speculations that their own policies forced companies into, which caused more risky speculation that can’t be unraveled.
And thus we have the pain we see today in the markets as interest rates are finally raised, but the Fed still has reduced it bond holdings of trillions of dollars.
Otherwise, the book gives some insight into the behind the scenes actions of the Fed to inject money into the economy over and over and over and never meet their promise to return to normal. Always bailing out risky speculations that their own policies forced companies into, which caused more risky speculation that can’t be unraveled.
And thus we have the pain we see today in the markets as interest rates are finally raised, but the Fed still has reduced it bond holdings of trillions of dollars.
January 12, 2023
The Fed do be proppin’ up asset bubbles tho.
February 20, 2022
A great, easy-to-read and hard-hitting book that tells how the Fed got to the point of recent asset bubbles and how we’re all basically screwed if we don’t have assets, and hence, how it increased asset inequality, which is far bigger than income inequality.
Leonard notes the story starts back in the 1970s, as Tricky Dick tried to deal with the detritus of LBJ’s guns and butter, and how that led to wage and price controls, then stagflation, then the Carter-Reagan recession and of course Paul Volcker. (He actually starts with a few pages on the creation of the Fed.)
But, after Volcker’s harsh medicine, and even more after an even more jobless recovery after a fairly mild Poppy Bush recession, the Fed uncoupled worries about asset inflation from worries about price inflation. And, pumped more money into the asset world at any signs of slowdowns.
That’s how we got asset bubbles starting under Greenspan, and getting on average worse and worse, until the Great Recession, with the medicine for that now worse yet.
The hero, if you will, or would-be hero? Tom Hoenig, former Kansas city Federal Reserve chief and a regular, rotating member of the Fed’s Open Market Committee. He saw by the time we’re at Ben Bernanke’s post-Great Recession actions, that Bernanke was both creating new asset bubbles and that there’d be trouble down the road. As the Kansas City Fed’s bank examiner back in the early years of the story, he’d seen problems in the 1980s with places like Penn Central and smaller banks as well.
But, he couldn’t get others of the 12 to join him in dissents.
He eventually, in Obama’s first term, took a senior position at FDIC. There, he wanted to bring Glass-Steagall back. He thought Dodd-Frank too arcane, too unwieldy, and maybe too easily gameable. But, with the “no regulations, just wrong” Tea Party now in the ascent, no chance. And, without a Trump offer to either run the FDIC or to have the Fed’s job of overseeing backs, he left DC again.
There’s a few items of alphabet soup. A biggie? A CLO, which is the big biz version of CDOs, the collateralized debt obligation on subprime mortgages there were a key factor on the Great Recession. The L is for “loan.” Big biz loans were collateralized at a rate that picked up speed when Bernanke started quantitative easing. The same lies were told about their tranches as with CDOs, and, with COVID, the same shit hit the fan.
The asset liquidity, as Hoenig and a few others figured, led to the massive amount of stock buybacks far more than to jobs. And, with CEOs being paid in stock options, increased asset inequality.
All good stuff, and short of nationalizing some banks, it’s why we’re screwed.
==
Note: Don't know about here, but at Yellow Satan, one-starrers with full reviews appear to be full-on Trumpists. Well, Trumpists, Cheeto put Jay Powell in charge of the Fed, so "gotcha" right there. Two-starrers claim that Leonard doesn't say what else could be done. Not the purpose of the book. He talks about what shouldn't have been done in the first place because it wasn't effectual.
Leonard notes the story starts back in the 1970s, as Tricky Dick tried to deal with the detritus of LBJ’s guns and butter, and how that led to wage and price controls, then stagflation, then the Carter-Reagan recession and of course Paul Volcker. (He actually starts with a few pages on the creation of the Fed.)
But, after Volcker’s harsh medicine, and even more after an even more jobless recovery after a fairly mild Poppy Bush recession, the Fed uncoupled worries about asset inflation from worries about price inflation. And, pumped more money into the asset world at any signs of slowdowns.
That’s how we got asset bubbles starting under Greenspan, and getting on average worse and worse, until the Great Recession, with the medicine for that now worse yet.
The hero, if you will, or would-be hero? Tom Hoenig, former Kansas city Federal Reserve chief and a regular, rotating member of the Fed’s Open Market Committee. He saw by the time we’re at Ben Bernanke’s post-Great Recession actions, that Bernanke was both creating new asset bubbles and that there’d be trouble down the road. As the Kansas City Fed’s bank examiner back in the early years of the story, he’d seen problems in the 1980s with places like Penn Central and smaller banks as well.
But, he couldn’t get others of the 12 to join him in dissents.
He eventually, in Obama’s first term, took a senior position at FDIC. There, he wanted to bring Glass-Steagall back. He thought Dodd-Frank too arcane, too unwieldy, and maybe too easily gameable. But, with the “no regulations, just wrong” Tea Party now in the ascent, no chance. And, without a Trump offer to either run the FDIC or to have the Fed’s job of overseeing backs, he left DC again.
There’s a few items of alphabet soup. A biggie? A CLO, which is the big biz version of CDOs, the collateralized debt obligation on subprime mortgages there were a key factor on the Great Recession. The L is for “loan.” Big biz loans were collateralized at a rate that picked up speed when Bernanke started quantitative easing. The same lies were told about their tranches as with CDOs, and, with COVID, the same shit hit the fan.
The asset liquidity, as Hoenig and a few others figured, led to the massive amount of stock buybacks far more than to jobs. And, with CEOs being paid in stock options, increased asset inequality.
All good stuff, and short of nationalizing some banks, it’s why we’re screwed.
==
Note: Don't know about here, but at Yellow Satan, one-starrers with full reviews appear to be full-on Trumpists. Well, Trumpists, Cheeto put Jay Powell in charge of the Fed, so "gotcha" right there. Two-starrers claim that Leonard doesn't say what else could be done. Not the purpose of the book. He talks about what shouldn't have been done in the first place because it wasn't effectual.
November 16, 2022
It's odd that a typical left-liberal book about American inequality and financial skullduggery has as its main hero Thomas Hoenig, the irascible long-time Fed employee who became the chief of the Kansas City Fed and Ben Bernanke's foil on the Federal Open Market Committee. Hoenig later became vice chair of the FDIC and then a fellow at the libertarian Mercatus Institute. The book presents him as a lonely voice in the wilderness, a piece of Middle America who refuses to abide by the gradual "financialization" of the economy, and who warns about how the Federal Reserve is fueling an inevitable asset bubble.
In retrospect, this is an odd take for a book published in 2022. It seems like Hoenig and other inflation hawks of the 2010s were proven wrong about the dangers of the Federal Reserve's low-interest policies (even if they were right about the dangers of a large Fed balance sheet.) The putative "asset bubble" Hoenig, Betsey Duke, Richard Fisher, and Jeffrey Lacker all warned about was a mirage, since there was no global asset collapse. The attempt by the book to make the coronavirus financial panic appear as the inevitable result of some bubble flies in the face of the reality of an unprecedented global pandemic. Strangely, the concern with asset bubbles means this book published in 2022 barely deals with the more concrete reality of inflation in that year, and how the post-coronavirus stimulus fueled that rather than just more "bubbles."
Still, the mini-biography of Hoenig's career at the Fed is interesting, and highlights how the lessons of the 1970s inflation and 1980s banking collapse imprinted itself future leaders such as Hoenig. The look at the Quantitative Easing-skeptic Jay Powell during his early, 2012-2015 period on the Federal Reserve Board also evens out the story told by "Trillion Dollar Bailout" that Powell was the odd-Republican supporter of strong action. Internally, he was very skeptical. So this book may not be one of the most original or insightful about the Fed during the past decade, but it does give its readers a different perspective on its internal battles.
In retrospect, this is an odd take for a book published in 2022. It seems like Hoenig and other inflation hawks of the 2010s were proven wrong about the dangers of the Federal Reserve's low-interest policies (even if they were right about the dangers of a large Fed balance sheet.) The putative "asset bubble" Hoenig, Betsey Duke, Richard Fisher, and Jeffrey Lacker all warned about was a mirage, since there was no global asset collapse. The attempt by the book to make the coronavirus financial panic appear as the inevitable result of some bubble flies in the face of the reality of an unprecedented global pandemic. Strangely, the concern with asset bubbles means this book published in 2022 barely deals with the more concrete reality of inflation in that year, and how the post-coronavirus stimulus fueled that rather than just more "bubbles."
Still, the mini-biography of Hoenig's career at the Fed is interesting, and highlights how the lessons of the 1970s inflation and 1980s banking collapse imprinted itself future leaders such as Hoenig. The look at the Quantitative Easing-skeptic Jay Powell during his early, 2012-2015 period on the Federal Reserve Board also evens out the story told by "Trillion Dollar Bailout" that Powell was the odd-Republican supporter of strong action. Internally, he was very skeptical. So this book may not be one of the most original or insightful about the Fed during the past decade, but it does give its readers a different perspective on its internal battles.
January 22, 2023
In a way, it is unfair to rate a book that you haven’t finished. But there will be a selection bias if only people who manage to look past the obvious misinterpretation of basic economic terms and theory go ahead and rate this book.
I am sympathetic to the premise, but to me the book fell flat. Mistakes describing doves and hawks, the yield curve and the economics field in the 70’s make it clear that this question and subject is out of the author’s realm of knowledge. One example below highlights this well. The economics field has very little to do with finance whatsoever, but in this quote the author tries to paint economists as proponents the modern financial markets and Hoeing as an exotic exception. Economics is a subject of the macro economy, the labor market, public choice, behavioral economics, discrimination, climate change and monetary policy. If one is interested in economic history and the development in the field, I warmly recommend Yellen: The Trailblazing Economist Who Navigated an Era of Upheaval instead.
”When Tom Hoenig studied economics at Iowa State, he studied it in a way that seemed quite strange in later years. By the 1990s, the field of economics would transform into something that seemed like the science of how to get rich quick. Modern economists developed theories that justified the actions of large corporations and banks, paving the way for international trade deals, new financial trading in exotic derivatives, and a relentless push toward maximizing profit for people who owned stock. But, in the early 1970s, Hoenig applied himself to a different kind of economics.”
The author clearly went in to this project with a strong hypothesis and picked what fit the narrative, instead af approaching this in a curious manner.
And it was too lengthy. I’m not particularly interested in the people described, the details about the color of the table at the FOMC open committee meetings and the humanization of the story didn’t move it forward. I did enjoy the recap of the discussions at the FOMC meetings about QE.
I am sympathetic to the premise, but to me the book fell flat. Mistakes describing doves and hawks, the yield curve and the economics field in the 70’s make it clear that this question and subject is out of the author’s realm of knowledge. One example below highlights this well. The economics field has very little to do with finance whatsoever, but in this quote the author tries to paint economists as proponents the modern financial markets and Hoeing as an exotic exception. Economics is a subject of the macro economy, the labor market, public choice, behavioral economics, discrimination, climate change and monetary policy. If one is interested in economic history and the development in the field, I warmly recommend Yellen: The Trailblazing Economist Who Navigated an Era of Upheaval instead.
”When Tom Hoenig studied economics at Iowa State, he studied it in a way that seemed quite strange in later years. By the 1990s, the field of economics would transform into something that seemed like the science of how to get rich quick. Modern economists developed theories that justified the actions of large corporations and banks, paving the way for international trade deals, new financial trading in exotic derivatives, and a relentless push toward maximizing profit for people who owned stock. But, in the early 1970s, Hoenig applied himself to a different kind of economics.”
The author clearly went in to this project with a strong hypothesis and picked what fit the narrative, instead af approaching this in a curious manner.
And it was too lengthy. I’m not particularly interested in the people described, the details about the color of the table at the FOMC open committee meetings and the humanization of the story didn’t move it forward. I did enjoy the recap of the discussions at the FOMC meetings about QE.
May 14, 2022
Since the financial crisis of 2008, the U.S. Federal Reserve has had a policy of very low (generally zero) interest rates, and of buying up assets, such as mortgage-backed securities, hence increasing money supply (so-called quantitative easing or QE). This has propped up stock markets, which, the author argues, is just one of several asset bubbles caused by QE. The author also argues that QE will be painful to undo, because the lack of return from conventional investments has made people buy excessively risky assets, which are liable to crash when safer alternatives (such as Treasury bonds) have an appreciable return again.
However, the structure of the book isn't well suited to making this argument. As if it were a long newspaper article, the book tries to personalize the topic by hitching it to the stories of three people: Tom Hoenig, a QE sceptic; Jerome Powell, who, during the course of the book, rises to become the head of the Federal Reserve; and John Feltner, a blue collar worker whose company was bought and sold by Powell's former employers, a private capital company. This means that any historical insight comes through their three narrative arcs. Although this does work to some extent, I would have preferred a more academic approach which might have produced better-argued and more concrete predictions.
However, the structure of the book isn't well suited to making this argument. As if it were a long newspaper article, the book tries to personalize the topic by hitching it to the stories of three people: Tom Hoenig, a QE sceptic; Jerome Powell, who, during the course of the book, rises to become the head of the Federal Reserve; and John Feltner, a blue collar worker whose company was bought and sold by Powell's former employers, a private capital company. This means that any historical insight comes through their three narrative arcs. Although this does work to some extent, I would have preferred a more academic approach which might have produced better-argued and more concrete predictions.
September 12, 2023
4.5. Really great book and very logically structured and explained. Demystifies QE and seemed pretty objective and balanced from a political standpoint. A book that every American should read to understand the true cost of keeping the printing press on to flood dollars into the banking system (Fed balance sheet is now almost 9 Trillion dollars) which gives a false security/optimism by creating asset price inflation (i.e. booming stock market) but, until now, manageable price inflation.
From 2008 and 2020 crash the Fed has pulled out all stops and come up with some very creative solutions that a jaded public doesn't blink at and have staved off bad times but given the big banks and hedge funds a free pass and moral hazard - this reminded me of a rich parents telling their child to exercise some caution/sense in placing bets in Vegas but if things go south, just let us know. As the book mentions, we have certainly socialized credit risk.
Very strong stats, comparing two decades post recession, were put forth that indicate how much the bailout expanded wealth inequality via the asset inflation aforementioned and the very weak growth in other areas (GDP, wage, productivity, etc.).
From 2008 and 2020 crash the Fed has pulled out all stops and come up with some very creative solutions that a jaded public doesn't blink at and have staved off bad times but given the big banks and hedge funds a free pass and moral hazard - this reminded me of a rich parents telling their child to exercise some caution/sense in placing bets in Vegas but if things go south, just let us know. As the book mentions, we have certainly socialized credit risk.
Very strong stats, comparing two decades post recession, were put forth that indicate how much the bailout expanded wealth inequality via the asset inflation aforementioned and the very weak growth in other areas (GDP, wage, productivity, etc.).
February 18, 2022
Looking back to the years I spent in school - the two most valuable experiences in my education are very different from each other - nine months of kindergarten in 1947, and a semester of economics 101 in 1962.
In kindergarten I learned to take turns, to put things back where they belonged, to cooperate with a group of others, to finish tasks on time. And kindergarten also enforced my parents' efforts to teach me to "be nice."
In college, 15 years later, economics 101 gave me a solid understanding of the way the world works. My understanding is that economics is not political - it just is. And can't be legislated or regulated to work another way.
I didn't think about kindergarten very much as I read this book, but I flashed back over and over again to learning about economics. It's hard not to ponder if some of the persons profiled in the book have forgotten econ 101, or perhaps never had a chance to study it.
Author Leonard has a fascinating book, a sobering book, an unsettling book. It's surprisingly readable. At times my eyes did glaze over with all the complex procedures he describes, but for the most part I followed his retelling of events.
In kindergarten I learned to take turns, to put things back where they belonged, to cooperate with a group of others, to finish tasks on time. And kindergarten also enforced my parents' efforts to teach me to "be nice."
In college, 15 years later, economics 101 gave me a solid understanding of the way the world works. My understanding is that economics is not political - it just is. And can't be legislated or regulated to work another way.
I didn't think about kindergarten very much as I read this book, but I flashed back over and over again to learning about economics. It's hard not to ponder if some of the persons profiled in the book have forgotten econ 101, or perhaps never had a chance to study it.
Author Leonard has a fascinating book, a sobering book, an unsettling book. It's surprisingly readable. At times my eyes did glaze over with all the complex procedures he describes, but for the most part I followed his retelling of events.
December 7, 2022
Lords of Easy Money by Christopher Leonard is a look at Federal Reserve monetary policy during the past few decades and how the Fed created many of the problems it also “solved.”
The Great Inflation of the 1970s is a prime example of a problem the Fed caused and then supposedly fixed. During this time, the U.S. experienced double-digit inflation after a relatively stable period partly thanks to the Fed increase the supply of money in the economy. Again, in the 1990’s with the Dot Com Bubble the Fed allowed the economy to get too hot until it raised interest rates and caused a recession.
In addition, the idea of “too big to fail” began to emerge. Large banks knew that the Fed would bail them out because they were too important to the greater US economy.
The book is told from the perspective of Tom Hoenig, president of the Federal Reserve Bank of Kansas City from 1991 to 2011. By the time he was close to retirement, he voted against almost every action Ben Bernanke took on the Federal Open Market Committee (FOMC), a committee well known for its unanimous votes. Hoenig felt money had been too easy to acquire for too long thanks to the Fed.
I found this topic relevant during a time of rising global inflation and interest rates. While reading this book I found it easy to understand the overall premise but more difficult to follow the timeline of events. The book is not in chronological order. I recommend this book to anyone interested in economics and US monetary policy.
Rating: 3/3
Genre: Non-Fiction/Economics
The Great Inflation of the 1970s is a prime example of a problem the Fed caused and then supposedly fixed. During this time, the U.S. experienced double-digit inflation after a relatively stable period partly thanks to the Fed increase the supply of money in the economy. Again, in the 1990’s with the Dot Com Bubble the Fed allowed the economy to get too hot until it raised interest rates and caused a recession.
In addition, the idea of “too big to fail” began to emerge. Large banks knew that the Fed would bail them out because they were too important to the greater US economy.
The book is told from the perspective of Tom Hoenig, president of the Federal Reserve Bank of Kansas City from 1991 to 2011. By the time he was close to retirement, he voted against almost every action Ben Bernanke took on the Federal Open Market Committee (FOMC), a committee well known for its unanimous votes. Hoenig felt money had been too easy to acquire for too long thanks to the Fed.
I found this topic relevant during a time of rising global inflation and interest rates. While reading this book I found it easy to understand the overall premise but more difficult to follow the timeline of events. The book is not in chronological order. I recommend this book to anyone interested in economics and US monetary policy.
Rating: 3/3
Genre: Non-Fiction/Economics
May 11, 2022
8/10
The fed has set up the expectation for bailouts for American Investment markets, which incentivizes markets to seek risk.
Quantitative easing: The fed lowering interest rates essentially means that the safest investments and rates of returns were removed, forcing investors to explore riskier bets further out on the yield curve. The yield curve is the axis of expected return on an investment, the further out you go towards risk, the higher the potential return, but also the greater the risk of default. Quantitative easing pumped easy money into the market, in hope's that companies would use this money to invest in jobs or infrastructure. One example of this would be Texas Instruments, which took out loans at .04 percent and bought back their own shares, which returned 2.5 percent. Not creating any jobs. This is a version of trickle-down economics where little actually trickles down.
In a zero percent interest environment, a bank is forced “…to search for earnings out there in the risky wilderness. A riskier loan might pay a higher interest rate, or a higher ‘yield,’ as the bankers call it. When banks start hunting for yield, they are moving their cash further out on the yield curve, as they say, into the riskier investments.” Eventually they are likely to fall off the edge of the yield cliff, thankfully the fed is there to catch them. Every time the fed intervenes, its future intervention was assumed by the market. If it stepped in to fix an issue, that created the feeling of an artificial floor for ever riskier investors to skate out on.
"In roughly 90 days the fed would create three trillion dollars, that was as much money as the fed would normally have created in 300 years."
"When asset inflation gets out of hand, people don't call it inflation, they call it a boom. If butter rose in price as quickly as stocks, that would have been seen as a problem."
The fed has set up the expectation for bailouts for American Investment markets, which incentivizes markets to seek risk.
Quantitative easing: The fed lowering interest rates essentially means that the safest investments and rates of returns were removed, forcing investors to explore riskier bets further out on the yield curve. The yield curve is the axis of expected return on an investment, the further out you go towards risk, the higher the potential return, but also the greater the risk of default. Quantitative easing pumped easy money into the market, in hope's that companies would use this money to invest in jobs or infrastructure. One example of this would be Texas Instruments, which took out loans at .04 percent and bought back their own shares, which returned 2.5 percent. Not creating any jobs. This is a version of trickle-down economics where little actually trickles down.
In a zero percent interest environment, a bank is forced “…to search for earnings out there in the risky wilderness. A riskier loan might pay a higher interest rate, or a higher ‘yield,’ as the bankers call it. When banks start hunting for yield, they are moving their cash further out on the yield curve, as they say, into the riskier investments.” Eventually they are likely to fall off the edge of the yield cliff, thankfully the fed is there to catch them. Every time the fed intervenes, its future intervention was assumed by the market. If it stepped in to fix an issue, that created the feeling of an artificial floor for ever riskier investors to skate out on.
"In roughly 90 days the fed would create three trillion dollars, that was as much money as the fed would normally have created in 300 years."
"When asset inflation gets out of hand, people don't call it inflation, they call it a boom. If butter rose in price as quickly as stocks, that would have been seen as a problem."
August 9, 2022
I dislike that the author has this strongly moralist tone (already present in the title), but I'm still rating this 5/5.
There a lot of interesting information which is clearly explained. Basically money is supply and demand. The Fed increase the supply of money which increased the risk the financial economy was taking but it never really benefited the real economy because there was never a growth of the "demand" for money.
(Now we have inflation, so probably finally the demand picked up.)
I feel saying that the Fed "broke" the economy is a bit much though.
Still would recommended if this kind of financial topics interest you.
There a lot of interesting information which is clearly explained. Basically money is supply and demand. The Fed increase the supply of money which increased the risk the financial economy was taking but it never really benefited the real economy because there was never a growth of the "demand" for money.
(Now we have inflation, so probably finally the demand picked up.)
I feel saying that the Fed "broke" the economy is a bit much though.
Still would recommended if this kind of financial topics interest you.
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