09 May Three Words that Ought to Really Frighten You
In David Wessel’s delightful 2009 book, In Fed We Trust (reviewed here), he tells a story about Federal Reserve chairman having an epiphany one night with his chief staffers, grinning ear-to-ear as he revealed to them the clever title he had come up with for his future memoirs: Before Asia Opens. In fairness, it is a clever title, but I guess what I would suggest is that those three words have come to mean something more important to American society, and it is not good.
For those that have no idea what I am talking about, “before Asia opens” is a reference to some point on Sunday evening for us Americans (the time varying based on what time zone you live in) when the Asian financial markets open for business. It is the earliest start of the global business week (as the European markets do not open for hours later, and the U.S. markets do not open for five additional hours from Europe’s open). Policymakers have used the opening of Asian markets as a deadline to deal with some particular fiasco over and over again. I had not heard the expression used in the present tense since November of 2008, but this weekend’s decision by the Euro zone countries to come up with some solution for the European currency and debt crisis prior to the opening of the Asian markets Sunday night was, well, deja vu all over again (and come out big they did, if you believe a $1 trillion emergency fund to be “coming out big”).
Here is the point I will make: It is not that whenever policymakers get together with a “before Asia opens” deadline that they are about to do something dangerous. I can go back to the JP Morgan/Bear Stearns deal, the Fannie/Freddie conservatorship, the attempt to dump Lehman off on Barclays, the bank holding company status of Goldman and Morgan, the backstop given to Citigroup on their toxic asset portfolio, and of course the formulation ofn TARP, and in each case, all on different weekends, policymakers (the Fed, the Treasury, Congress, whatever) faced a crisis of sorts that did represent genuine disruption to the capital markets, and probably did create the perception of a need for action prior to the opening of the Asian markets. I would have different comments to make on each of the aforementioned situations (some positive, some not), but that is not what I am writing about. And I am not even writing about the EU’s decision to provide a loan and guarantee to the various member nations who have spent themselves into oblivion. My Libertarian friends who carte blance dismiss all action by governments and policymakers once they are already in the mess they have created lack the depth necessary to engage this conversation. What I would suggest, though, is that any time the expression “before Asia opens” is uttered, it is only because policymakers have already so badly screwed something up that such an ad hoc crisis response ever became necessary. In other words, “before Asia opens” does not necessarily mean “we are about to really do something stupid” (though it often does), but what it universally means is we have already done something so bad, so severe, and so reckless, that we now have a self-appointed deadline of 48 hours from now to desperately band-aid it. “Before Asia opens” is the quintessential proof of government failure. There is no catch phrase to better warn you that they are about to reap what they have sown.
I would like to see the phrase “before Asia opens” banned from the English language. But if we had cogent economic philosophy and a system of government that did not try to create social policy from the halls of Congress, or the printing presses of the Fed, it would not ever be neccessary to utter it. We are not serious in this country abiout remedying what has gone wrong. We have decided that we can run the ball down the field as far as possible with various cockamamy ideas, and then when it all blows up the thing to do is call an emergency time-sensitive meeting with all the mai characters to see who will do what. It is dysfucntional. ANd at this looint, we need to be surprised when it does not happen; not surprised when it does.
If I were a conservative Congressman I would suggestion legislation tio outlaw “before Asia fails” crisis management. The reason is that we need to permanently remove the ideological and intellectual forces that have cause policy to be so wrong, for so long. Fannie and Freddie caused a lot of late Sunday night “restore the crisis markets sessions”. But if Fannie and Freddie had been disbanded thirteen years earlier, such a decsion would have had no dramatic social implications at all, and it certainly would not have damaged the systemic safety of our global financial system. If you refuse to put a wild dog down on a Tuesday, you ened uop with a painful, stressful Sunday night scene trying to figure out what to do now that the wild dog went on a rampage. Only the peak of the crisis and the Asian markets opening got lawmakers t take the ghastly step of putting the companies in conservatorship.
Before Asia Opens. They are now iconic words. But tnhey are dangerous. They are dangerous because they testify to the insidious system we live with now. All I want is a few grown-ups to sit down and talk about the matters at hand. In Dave-land, Federak Reserve governors and Treasury officials are home with their families on Sunday night. They never need to make an ad hoc decicion that could kill or sustain a whole country, or a whole system of economic life. There are ways tio make this come about. For now, all we can do is pray for a semblance of sanity. And pray we never hear “before Asia opens” again. Read on regarding what they have done this weekend in the EU. I dare you.