Category: Book Quotes of the Day

“Fickle Fate is a vicious goddess who brings no permanent good to anyone. On the contrary, she brings ruin to almost every man upon whom she showers with unearned gold. She makes wanton spenders, who soon dissipate all they receive and are left beset by overwhelming appetites and desires they have not the ability to gratify. Yet others whom she favors become misers and hoard their wealth, fearing to spend what they have, knowing they do not possess the ability to replace it. They further are beset by fear of robbers and doom themselves to lives of emptiness and secret misery.

Who will pay when this credit bubble bursts? The poor and middle class, not the elites. If those injured most by Fed policy could understand, they would be marching at Yellen’s door with protest signs, screaming “Show us the wealth effect!”

Ironically, Yellen would come under fire for leaking information to Medley Global Advisors, which advertised to clients that it provided information on central bank developments “by cultivating relationships with senior policymakers around the globe.”

“I think there’s the potential for riots in our own streets, social unrest like we’ve never seen,” Fisher said.

During a recent trip to China, Fisher had been grilled by senior officials of the Chinese government about “whether or not we are going to monetize the actions of our legislature.” Made sense since the Chinese were among the biggest buyers of U.S. Treasuries.

Technically it takes two to tango to monetize the debt. The Treasury first issues the debt and the Federal Reserve buys that same debt, which increases the money supply. Effectively, it gives Congress an open checkbook and allows policymakers to put off making hard choices that budgetary constraints would otherwise force.

“When the market is in the depressive phase of… a bipolar disorder,” Fisher said, “crafting policy to satisfy it is like feeding Jabba the Hutt–doing so is fruitless, if not dangerous, because it will simply insist on more.”

Normally the NAV of MMFs is kept at one dollar. On September 17, the Reserve Primary Fund was forced to lower its share value to 97 cents because of exposure to Lehman’s commercial paper. No other MMF had broken the buck since 1994, in the aftermath of the bankruptcy of Orange County, California.

“As long as I am alive this firm will never be sold,” Fuld had told the Wall Street Journal in late 2007. “And if it is sold after I die, I will reach back from the grave and prevent it.” Now, one foot in the grave, he frantically began seeking buyers.

In 2000, about four thousand hedge funds managed $500 billion; by 2008, there were ten thousand hedge funds controlling $1.8 trillion. Investors thirsty for yield flooded into these riskier classes of assets.