Thursday, June 21, 2012

Economist Anna Schwartz, Milton Friedman's co-author, on the policies pursued since the beginning of the financial crisis

In a Bloomberg article on her life, economist Ann Schwartz, Milton Friedman's co-author, offered her opinion of the policies pursued since the beginning of the financial crisis.

In recent years, she emerged as an outspoken critic of efforts by the Fed and Treasury to revive credit and bail out companies during the financial crisis of 2008 and to combat the recession that lasted from December 2007 until June 2009. 
She called the 2008 rescue of Bear Stearns Cos. a “rogue operation” and an unwise widening of the government’s safety net. 
“To me, it is an open and shut case,” she said in an interview in May 2008. “The Fed had no business intervening there.” 
In a 2008 interview with Barron’s, Schwartz said the government needed to stop injecting liquidity into markets and reacting to the credit crisis with ad hoc programs.

“If I regret one thing, it’s that Milton Friedman isn’t alive to see what’s happening today,” she told the magazine. 
Referring to Bernanke, she said, “It’s like the only lesson the Federal Reserve took from the Great Depression was to flood the market with liquidity. Well, it isn’t working.” 
Schwartz said in a July 2009 commentary for the New York Times that Bernanke, the architect of the central bank’s emergency programs, didn’t deserve reappointment as Fed chief. 
“Mr. Bernanke seems to know only two amounts: zero and trillions,” she said, referring to his policy of holding the target interest rate near zero and the expansion of the Fed’s assets to $2 trillion in July 2009, more than double the level of early 2008.
Regular readers know that the policies that Mrs. Schwartz disapproved of were all a result of the adoption of the Japanese model for handling a bank solvency led financial crisis.

Her conclusion that the policies were not working is as true today as it was when she said it.

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