From James Grant’s “Mr. Market Miscalculates- The Bubble Years and Beyond.”

“Under Greenspan, the Fed has evolved into a kind of national financial fire department. It is not merely the lender of last resort but also the damage-control coordinator of first resort. No act of Congress made it so. But so reliably has the Fed appeared at the scene of speculative accidents that it probably couldn’t stay away from the next one even if it wanted to. It must keep trying to fix what’s broken, even when almost nobody realized what was broken.”

“Repeated and predictable acts of intervention can’t help but change behavior. The more dependably the Fed fends off disaster, the bolder and more leveraged investors become. The bolder investors become, the higher the markets go. And the higher the prices and the greater the leverage, the more likely does a financial accident become. In response to which, of course, the Fed would intervene.”

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