Fed Said to Be More Unprepared For Crisis Than 10 Years Ago

Friday, September 7, 2018
By Paul Martin

by Tyler Durden
Fri, 09/07/2018

A group of current and former policymakers and academics in the financial industry that comprise the “Group of 30” – a financial industry working group that includes names like Mario Draghi and Mark Carney and which is the “who’s who” of economists and experts that led the world into the last financial crisis – has come to the same conclusion that the many in the “fringes of economic thought” have been warning about for the last decade: the Fed is going to be in worse off shape to fight the next major crisis than they were in 2008.

“Some of the tools to fight the hopefully rare but extreme crises in the future have been weakened,” Tim Geithner, a distinguished Group of 30 member, told Bloomberg.

While many of our readers have likely arrived at that same conclusion on their own, the reasoning by the Group of 30 seems to differ somewhat from conventional skepticism. More importantly, how could the world be “unprepared” nearly a decade after the great recession, and with new reforms being put into place as a result of the financial crisis?

According to Geithner, new reforms are actually part of the problem. Geithner tells Bloomberg the unease is a partially a result of “Congress limit[ing] the ability of the Federal Reserve and the Federal Deposit Insurance Corp. to provide emergency support to the financial system”.

Mexico’s former central bank head Guillermo Ortiz started to hint at the right idea when he told Bloomberg that “The next financial crisis will likely come from a new source”. But that new source, according to Ortiz, is not the biggest debt load ever seen in the history of the world, but will be due to… cybercrime.

“Central banks and supervisors may not be placing enough emphasis on preparing,” he continued telling Bloomberg.

Meanwhile, as policymakers confirm that they believe the next crisis is going to be “different”, it still doesn’t seem as though anybody has considered the idea of the alarm going off from inside the U.S. as a result of a potential hyperinflationary or currency based crisis.

Au contraire, these grizzled experts believe that the problem is that they won’t be able to inject dollars into the system fast enough – just the opposite. Further, policymakers believe that the enhanced regulation on banks has likely simply left them playing whack-a-mole and pushing much of the nefarious behavior to the shadow banking system.

The Rest…HERE

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