Reading Damian Paletta’s Wall Street Journal Political daily email blast, I came across this:
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A little story.
More than 20 years ago, when I was a reporter at the American Banker newspaper, I filed a Freedom of Information Act request seeking the calendar and phone logs of then-Fed Chairman Alan Greenspan. The materials were produced the week after he left office (suspicious timing? Ya think?). The most interesting thing in the phone logs was this: Greenspan regularly consulted with a young Bush administration White House staffer about housing-finance giants Fannie Mae and Freddie Mac. This received a lot of attention because calls between the White House and “independent” Fed chair were supposed to be few and far between. That young White House staffer? Kevin Warsh.
This took me back to the memory of Barney Frank’s infamous “roll the dice” quote in the lead-up to the 2008 financial crisis. This was September of 2003, so it would have been around Mr. Paletta’s more than 20-year timeframe. Likely after Frank’s quote, but certainly within the timeframe where D.C. power players, White House finance bros, and Federal Reserve Chairmen would be watching Fannie Mae and Freddy Mac much more closely. I’d been reading op-eds in the Journal for years before 2008 warning of the impending crash, so the notion that no one could have seen it coming is ludicrous.
Barney Frank’s ‘roll the dice’ quote was spoken during a September 25, 2003, House Financial Services Committee hearing, which found Frank resisting calls for tighter regulatory oversight and strict capital requirements for Fannie Mae and Freddie Mac loans. Instead, he argued that overregulation would hurt affordable housing goals:
“I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing.”
No meaningful regulation was affected, and the subprime mortgage market collapsed in 2008, triggering a global financial crisis. Frank’s words of five years earlier were often quoted by critics as evidence for a flippant attitude among congressional Democrats toward adequate oversight of subprime mortgage loans.
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The point in Paletta’s blast was to question whether Warsh had consulted with Trump prior to raising rates this week, and if so, to what extent. His story from “over 20 years ago,” outing Warsh as the Bush White House aide involved, insinuates that this is a game Warsh knows well and has been playing for a long time and, in fact, maybe even invented himself. This may be me reading far more into Paletta’s story than is there, but I’m not sure what other purpose there could be for it.
To me, it illustrates that this sort of coordination between the “independent” Federal Reserve and the White House is not without precedent, and Warsh, as a young Bush administration White House staffer, can’t have been the first, last, or only official to engage in it.
Like most everything else associated with Trump, any perceived interference with the Fed, is going to be done as bigly as everything else he does.
On a side note, only in America could a major player, and arguably, central architect of the financial crisis of 2008, co-author the sweeping 2010 Dodd-Frank Wall Street Reform Act to impose tighter restrictions on the banking system.
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