I know you know about Moral Hazard. I know you know about small bubbles allowed to get bigger getting out of control. I'm sure you know the phrase "Privatized gains and Socialized losses." These all apply here.
The mark of a successful Fed is in reducing not just the frequency of banking issues but also the amplitudes. Every time the Fed is forced to step in, the interest rate cuts get bigger, the debt they create gets bigger, the Congressional action larger.
The mark of a successful Fed is in stepping in ahead of time before the bubble gets out of control. If a Fed needs to take drastic action, they've already failed. CO-VID, being the first non-financially caused recession in 50 years, is a special case, and for that I give them leniency.
I agree with all that broadly, but I would push back and say the Fed's responsibility wasn't to stop the subprime crisis. That was Congress' responsibility. It's not the fire fighters job to stop people building houses made of paper. That's the fire marshal, the city planning department, the inspectors, and so on.
They stepped into the repo market when secured overnight rates blew up to 10% in sept 2019, they get no leniency from me (should have blew up instead of engaging in moral hazard).
Agreed (I was long tail risk on HY and IG corp bonds from dec 2018 which still payed out alot in feb/march 2020, was watching the slow motion train wreck with SOFR-UST yield spreads before sept 2019), that combined with all the other shenanigans last year with exchanges and their custodians (I used IB and robinhood), made me sell everything and move into defi and dex only.
Now time to watch the slow leverage build up of stablecoins on chain with the decentralized non custodial derivatives protocols :D
The mark of a successful Fed is in reducing not just the frequency of banking issues but also the amplitudes. Every time the Fed is forced to step in, the interest rate cuts get bigger, the debt they create gets bigger, the Congressional action larger.
The mark of a successful Fed is in stepping in ahead of time before the bubble gets out of control. If a Fed needs to take drastic action, they've already failed. CO-VID, being the first non-financially caused recession in 50 years, is a special case, and for that I give them leniency.