Danielle DiMartino Booth
A CONVERSATION WITH...
alongside the other. It was a liquidity freeze that needed solving, not the QE2 and QE3 that again just benefited a very small tony cohort and Uncle Sam. Q: I remember one of the big problems in 2009 was the commercial credit log jam and lockup. Do you think that could have been solved without the Fed expanding its balance sheet? DANIELLE DIMARTINO BOOTH: I was there when then-Dallas Fed president Richard Fisher asked me to get all the top- ranked commercial paper on Planet Earth. We created a facility at the time, live, on the ground to resolve the freeze-up in the commercial paper market. A lot of what was created by the Fed’s quantitative easing has made its way into malinvestment, to use an Austrian term... And a lot of it went into pulling investment forward that didn’t need to be done at the time. Q: What role has all that money and all those bailouts played in exacerbating the wealth disparity in our country? DANIELLE DIMARTINO BOOTH: It’s played a tremendous role. If you think in terms of QE2 and QE3, when I was jumping up and down, pounding the table saying, “You’re going to hurt the people you’re supposed to help – i.e. Joe Sixpack and Jane Q. Worker on Main Street – if you insist on distorting the cleaning out of the housing market.” Today, you have multibillionaires buying homes to rent out, and they’re price-agnostic buyers playing with somebody else’s money,
But in the current rendition, since the great financial crisis broke, much of it is in unsecured debt. We’re talking about automobiles that lose a huge amount of their value the minute they’re driven off the lot, and a used-car price environment that is declining because too many people have bought more cars than they can afford, and student loans. Again, this is unsecured debt, as opposed to having something you might be able to liquidate and salvage some of the value, which is what happened in the aftermath of the subprime mortgage crisis. I consider the central bank potentially to initially have been well-intentioned, but no longer. They're absolutely corrupt. Q: What do you think would have happened in 2008 and 2009 if the Fed hadn’t been able to radically expand its balance sheet? DANIELLE DIMARTINO BOOTH: Well, I think that we would have had a much nastier corporate-default cycle than we did. I think we would have potentially had an RTC type of solution to the mortgage crisis. And I think that there would have been a greater washout among investors, and less in the way of excessive and further moral hazard created due to the central bank riding to the rescue. Recall that the liquidity measures put in place to unfreeze the credit markets by the New York Fed had diddly-squat – that’s a technical term – to do with the Fed expanding its balance sheet. One did not have to go
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92 | October 2017
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