Money for Nothing: Inside the Federal Reserve

This is a wealth of information for anyone wanting to gain a general understanding of macro economics and how it is affected by policy. It's a history of the federal reserve, it's chairmen and the decisions they've made as a group, in an effort to protect the dollar, employment, and economic sentiment over the past century or so. They show the results of the different approached the federal reserve has taken to remedy different situations, ranging from banking, the trustworthiness of the dollar, war, economic crashes due to soaring interest rates, bubbles doomed to burst due to lowering interest rates, etc. It all is portrayed as the results of genius, and on the flipside inability to predict the future, with no mention of corruption to be seen or heard.

A must-see film for investors looking to understand the recent Boom & Bust cycles produced by the Federal Reserve. More importantly, a must-see film for investors looking to dodge the next BIG bubble. The producer does an excellent job illustrating the history of the Federal Reserve and its original role in the economy. Most impressive, is the quality of the cast interviewed during the film. Members of the Federal Reserve, IMF, Bank of International Settlements, and famous economists to name only a few examples. The credibility of these individuals gives the information more weight than the average documentary. Finally, the film goes on to explain how the Federal Reserve has become something that was not originally intended during its creation, a political instrument that impacts every one of us. Never has it been more important to understand this concept and how it applies to the next big bubble being created as we speak.

I'll save you the time: the "Great Moderation" that I began working during in 1984 is over. The stock market bubble became the housing bubble which became ... the Government Debt bubble (which has yet to burst). It's incredible to watch each crisis, and how each one has driven interest rates lower and lower, until we are at ... zero. We have created a scenario where we can't lower them again. Quantitative easing has kept us afloat but for how long?

Inflation remains low but my understanding is the CPI no longer includes food or energy? And while unemployment has lowered my understanding is that is because people have left the workforce, and very few if any "real jobs" have been created. The films producers point out we are an economy that has consumed more than we have produced for an entire decade. They ask the question: "how long can this continue?"

The film really got me thinking about a term they brought up: "moral hazard." If I know the Fed will bail me out on the downside why not accept the risk? It also applies in my mind to debt. In olden days people worried about putting debt on their children and grandchildren. That's no longer the case for many people like me. Free Heath care? Why not? Oh if an anti-viral will save me I can practice unsafe sex? Why not? I never knew it had a name but it does: "moral hazard" and I think it's becoming rapidly absent in modern society.

It's especially applicable to the Justice System. I'm now officially a true crime addict. And one common thread in these horrendous cases is truly dangerous people are released into society time and time again. Criminals routinely violate their paroles with no negative consequences. Yes I'm against the "Prison State." But if we promise to punish but in the end "bail out" the truly bad guys, what are the consequences for a safe society? No easy answers.

Anyway I suppose I should start a blog rather than meander in emails. This movie is kinda a snoozer but I wanted to share my thoughts.

This documentary along with "The Flaw" and "Too Big to Fail" help to explain the causes behind the '08 housing and financial collapse. "Money for Nothing" puts a spotlight on the Federal Reserve, or the "Fed" for short. Various economists chime in about the policies of primarily Alan Greenspan while he was the Fed chair. As one economist put it:

"The nation's most powerful banking regulator considered regulation obsolete."

But that wasn't entirely true. He practiced hands off until the banks were in trouble, then it was all hands on deck. If banks got into hot water with risky practices they could rely upon the "Greenspan put." This prompted one economist to say:

"This alleged libertarian was presiding over the socialization of risk in our economy."

While another stated, "Banks were spared of the free market's rule of survival of the fittest."

It's an interesting documentary while still being upsetting because yet again you see that there are a different set of rules for banks and corporations than for the rest of us. If banks make bad bets, "Don't worry about it, you have a safety net." If YOU make bad financial decisions, "You need to make smarter decisions, you peon."

At least that's what I continue to hear.

Free on Tubi TV.

One of the best documentaries I've seen demonstrating how the role of the Federal Reserve contributed to the Financial Crisis of 2008. In the wake of the financial collapse of 2008 creating a Recession which could have led to another Great Depression, a lot of blame was leveled against Investment Banks who were vilified as being greedy, particularly Lehman Brothers and Bear-Stearns, and insurance companies like AIG who undertook too many credit default swaps. The financial banks had taken on nearly as much debt as their assets, particularly in sub-prime mortgages, and AIG had insured them against default, i.e. "default swaps". When Lehman went bankrupt, AIG owed trillions of dollars in insurance against default, which nearly brought down the financial system.

Now, while Lehman and Bear-Stearns share plenty of the blame in the recent crisis, these bad debts and faulty reliance on sub-prime mortgages were not solely private sector malfeasance. A US department agency also played a crucial role: The US Federal Reserve. The US Federal Reserve ("The Fed") since Alan Greenspan became Fed Chairman in the late 1980's under then President Ronald Reagan engaged a more "hands-off" policy in terms of financial regulation and at the same time allowed much more loan money to be acquired by these private financial institutions who in turn bought into risky investments. This documentary outlines why the Fed was created in the first place, its role over the years in terms of both regulating and stimulating financial markets and what it did and didn't do to contribute to the recent financial collapse. While I don't believe the Fed was solely responsible for the financial collapse, as suggested by the film, their policy approaches were vital as one of many contributing factors which created a financial "perfect storm".

Two of the leading characters whose roles were crucial in the Fed's policy-making in this unfolding drama were the two Fed Chairmen Alan Greenspan (1987-2006) and Ben Bernanke (2006-2014). Greenspan in particular was touted as a financial guru who understood financial markets better than a Super Bowl winning football coach understands how to get first downs and touchdowns. If Greenspan didn't know the answer to an aspect of the financial market, the question itself must be flawed, or so went the conventional wisdom for nearly 30 years. To his credit, Greenspan had steered the US economy through several storms. What he didn't know was that a financial hurricane was descending upon Wall Street.

Over and over, Greenspan had opportunities to regulate aspects of the financial markets, particularly the so-called credit default swap insurance policies, issued by the likes of AIG and others. He also could have reigned in loose lending practices. Once, early on as Fed Chairman, Greenspan hinted the stock market may be spiraling out of control, but was quickly vilified by Wall Street for his remarks. Since then, during much of his tenure, he took a position of deregulation in which "the market will figure it out" approach so prevalent in Conservative politics. Ben Bernanke, who is a self-described scholar of the Great Depression, also didn't see the financial collapse coming. In several interviews prior to the beginning of the collapse, Bernanke iterates the impossibility of a national drop in housing prices. His scholarship for some reason precluded him from seeing the coming crisis, first in terms of the bursting housing bubble, then the ensuing financial crisis which was spawned as a result.

While scholars have debated and will continue to do so over the next century over the reasons for the financial crisis, several things are clear about the Recession. The Fed contributed to the collapse with certain policies, greed does not necessarily regulate itself, and no single individual can know everything about every aspect of the market. At the ensuing congressional hearings which Congress called after the collapse, Greenspan admitted the flaws of his policies. He said he assumed that financial institutions would always make the best decisions which would be in the interest of their companies. The reality is, just like everything else in a complex modern world, the private sector cannot always be counted on to make the best of decisions, be it for their companies or the worldwide economy. The Fed has a role to play in at least helping to thwart a possible crisis in the future. That role is always endlessly debated by politicians, congressmen, financiers, advisers and occasionally scholars. Let's hope the financiers won't always get 100% of their desires.