Here's one for the leaders of the cabal which argued that anyone who was not unreservedly in favor of the Bear Stearns (and investment banks) bailout was a Moral Hazard fundamentalist.
Apparently it's not such a no-brainer, but then again we always knew that. When an economist has a weak case to make, its the name-calling that becomes the weapon of first resort, especially in the rarefied atmosphere far from the trading pits where the unintended consequences can be most easily seen.
April 28, 2008, 3:55 pm
Wall Street Journal
Ex-Fed Official: Bear Deal ‘Worst Policy Mistake in a Generation’
By Greg Ip
The Federal Reserve’s moves to prop up Bear Stearns Cos. will come to be seen as “the worst policy mistake in a generation,” the Fed’s past head of monetary affairs said.
The action is comparable to “the great contraction” of the 1930s and “the great inflation” of the 1970s, said Vincent Reinhart, a scholar at the American Enterprise Institute, who retired from the Fed last fall. (That sounds like some serious stagflation - Jesse)
Mr. Reinhart’s assessment, delivered at a panel discussion at the institute Monday, is one of the harshest appraisals yet by a high-profile observer of the Fed’s decision in mid-March to lend money to Bear both as temporary funding to make a merger possible and then to finance $29 billion of Bear’s assets to make its takeover by J.P. Morgan Chase & Co. possible.
