The Lords of Eay Money by Christopher Leonard

This is one of the Wall Street Journal's 10 Best Books of 2022, and while I found it terrifying, I am sure it would have been even scarier if I actually knew anything about the subject before I started. Here's what I got. The Federal Reserve is an entity that was created under the auspices of J.P. Morgan in 1910 after he basically held people hostage on Jeckyl Island until they came to an agreement on how to regulate banks. The Fed and most mainstream academic economists believe that a deft manipulation of monetary levers can increase employment or control inflation. But this implies a direct connection between the Fed and Main Street. The truth is that any monetary-policy intervention must be mediated through the financial system, a complex organism made up of millions of individual bankers, pension savers, fund managers, private-equity investors, day traders and others, all with their own incentives. The author contends that the Fed understands startlingly little about how this financial system transmits its policies to Main Street, and the same could be said of me. In comes Thomas Hoenig, the president of the Kansas City Fed from 1991 to 2011 and, in the post-2008 era of ultralow rates and quantitative easing, a dissident at the Federal Open Market Committee (FOMC). As a regional bank regulator starting in the 1970s, Mr. Hoenig had a front-row seat to the financial-system excesses stirred up by monetary easing and the destabilizing crashes that followed. Mr. Hoenig was often portrayed in the media as a monetary hawk for his ornery votes against expanded Fed interventions. Mr. Leonard offers a more nuanced view. Starting in the Alan Greenspan era of 1987 to 2006, the Fed became preoccupied with containing consumer-price inflation. But Mr. Hoenig understood, as had Paul Volcker in the early 1980s, that asset-price inflation could be just as dangerous. The debate within the FOMC after 2008 concerned not whether the absence of consumer-price inflation gave the Fed permission to continue with its quantitative-easing program but whether, despite that absence, financial risks were storing up within the economy, as Mr. Hoenig warned. One wishes Mr. Hoenig’s efforts to stir this debate had succeeded within a pathologically consensus-oriented FOMC. There is so much more to this spinning out and why it is concerning, but suffice it to say that reading this in the wake of the recent bank failure was not reassuring.