In an interview with The Wall Street Journal today, Richmond Federal Reserve Bank president Jeffrey Lacker said that firms have contacted the Fed saying, “’I’d like to take over this other firm, can you help, like you helped with Bear?’ We’ve turned them down because helping them wasn’t appropriate.” Lacker was referring to the Federal Reserve’s $29 billion loan and facilitation of JP Morgan’s (JPM) purchase of Bear Stearns. He told the Journal’s Greg Ip that “the Fed will eventually have to let some important institutions fail to convince the markets that it won’t routinely prop up troubled institutions.”
Similar sentiment was given in a speech Lacker gave in London today on “Financial Stability and Central Banks”. Lacker is concerned that extending credit to investment banks “might induce greater risk taking, which in turn could give rise to more frequent crises, in which case it might be difficult to resist further expanding the scope of central bank lending.” He believes that greater access to the Fed’s lending facility should coincide with greater supervisory oversight.
Another issue Lacker raised was the Fed needs to “communicate policy intentions clearly. Deliberate imprecision – the so-called ‘constructive ambiguity’ approach – leaves it to market participants to draw inferences for future policy from our past actions.” Policy actions should be “time consistent” with “a commitment not to lend beyond the new policy boundaries.” Reading the speech I immediately thought of the Fed’s Primary Dealer Credit Facility (PDCF) that will run for “at least six months and may be extended as conditions warrant.” Wall Street already takes for granted that the Fed will extend the PDCF beyond September 16, 2008 if Lehman (LEH) or another financial institution needs it.
Lacker cites how he and a former colleague “drew the parallel to the building of monetary policy credibility after the inflationary experience of the 1970s. We noted that central banks, the Fed included, made many statements about their desire to see inflation come down during the 1970s, but it was not until strong and costly actions were taken, with broad (though not universal) public understanding and support, that inflation was broken in the 1980s.”
With his Mercury challenging Uranus and his Moon in independent Aquarius, Jeffrey Lacker is going to tell you exactly what he thinks, and if his opinions contradict Fed Chairman Bernanke, so be it. Unfortunately, Lacker is currently not an FOMC voting member. (When he was in 2006, Lacker dissented as he wanted higher interest rates.) Lacker was born with the Sun conjoined Venus in its “home” sign Libra. Venus rules finances and in Libra is concerned with financial balance as reflected in Lacker’s concerns about commercial banks and investment banks having equal access to the PDCF, but investment banks are not closely regulated. Lacker’s Mercury is conjoined with Neptune in Libra which challenges the USA’s Pluto in Capricorn. He is particularly intuitive about Wall Street’s financial alchemy and with his Mars in Virgo aspecting Saturn in Scorpio, he would know what actions to take to keep the financial system in check.
All the talk about Bernanke’s speeches earlier this week was nothing more than Mercury stationing retrograde on his natal Jupiter. He did made two speeches two days in a row in homage to the dualistic nature of the Gemini New Moon. Jupiter rules foreign places and higher education and the venues reflected that. The first speech was via satellite to the IMF conference in Barcelona. The second speech was at Harvard University’s Class Day 2008. In both speeches, Bernanke continued to defend the Fed’s policy actions, and at Harvard he yet again denied a role in “that ‘70s show.”
With Pluto in Capricorn opposing the Federal Reserve’s Sun, scrutiny is coming from outside as well as inside the central bank. Philadelphia Federal Reserve Bank president Charles Plosser (a voting member who has dissented on rate policy), said in a speech today that the Fed’s actions can “effectively subsidize risk-taking by systemically important financial institutions.”
Lacker concluded his speech by saying: “Certainly, a central bank’s macroeconomic policy can have a large impact on the stability of financial markets, through the control of inflation and inflation expectations. This is perhaps the greatest contribution central banks can make to the overall performance of financial markets.” Unfortunately for the American consumer, Jeffrey Lacker is not Fed Chairman.
Jeffrey M. Lacker: September 27, 1955 time unknown Lexington, Kentucky
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