Enlist allies in the media and public policy to highlight little known but pressing issues, said the ex-Federal Reserve president who had forewarned for years about the growing dangers of financial companies considered “too-big-to fail.”
Gary Stern, the recently retired head of the Federal Reserve Bank of Minneapolis, and his colleague Ron Feldman, a senior vice president at the bank, had long tried to point out the incentives which they concluded were creating morally hazardous conditions among ever larger financial institutions.
In 2008, to prevent what was seen as catastrophic damage to the U.S. economy and financial system, the U.S. government moved quickly to spend hundreds of billions of dollars to prevent the failure of the world’s two largest mortgage finance companies and the largest insurer.
“It’s not easy to be heard,” Stern said in an interview last week with International Business Times when asked what others should do who find themselves in similar situations. He encouraged would-be advocates to reach out to make the problems known.
Another of Stern’s peers at the Minneapolis Fed, Senior Vice President and Director of Research Art Rolnick, said in an essay written in September that Stern had been speaking about the issue consistently.
“The man and the phrase have been all but inseparable over the past decade. Stern has given countless speeches, written numerous articles, delivered Senate testimony and, of course, co-authored a book on a topic that once seemed obscure and now is inescapable in debate over financial reform,” he said, mentioning Stern’s contributions and legacy to the Minneapolis Fed.
Stern and Feldman believe certain incentives lead institution managers, policymakers and uninsured creditors of large and complex financial institutions to expect government bailouts. In a speech in July he said that Obama administration policy makers had still not properly addressed the underlying issues regarding the too-big-to-fail issue. He said the U.S. Treasury’s proposal to address the issue, “largely fails” and that “there is nothing” in it that will put creditors at a risk of loss.
When asked how he could have improved on his previous efforts to bring attention to the topic ahead of the crisis, one thing that could have helped would have been to “streamline” his proposals.
In assessing the TBTF issue as part of the greater economic crisis which the U.S. has suffered through in the past two years, Stern said he didn’t want to quantify its impact but said it was “quite significant” and certainly not the only issue which contributed to the downturn.
Looking Ahead after the Fed
Stern was at New York’s St. Regis Hotel last Thursday just before he was to be given a “Visionary Award” by the Council for Economic Education meant for “champions of economic empowerment.” His work with the Council as a board member and as President at the Fed in Minneapolis has included advocacy for economic and financial literacy
Looking ahead at his tenure with the CEE, which spans more than 20 years, Stern indicated that he was considering working actively in that capacity for a relatively short period longer. It was now close to the time to pass the baton to others, he said, to allow the organization to receive “fresh ideas.” He said that he could envision working with the CEE board for another one to two years.
As a result of Stern’s involvement with the organization, CEE communications director Naheed Elyasi says the non-profit is positioned to work more closely with the Minneapolis Fed in the future. The Fed branch has a particularly strong drive to improve financial literacy, she noted.