It's been Winter Institute day here today, and I have been caught up in listening to speakers and helping get a workshop started, while thinking about my evening talk. Our first speaker this morning was the return of St. Louis Federal Reserve President Jim Bullard to our campus. Here are his slides and text. A few notes:

• He's unsurprisingly negative on the idea of a Federal Reserve audit. He estimates that his staff spends about 425,000 hours a year on auditing between internal controls, the Board of Governors, and the external audit from Deloitte. The GAO audit is in addition to that. His slide notes: "Additional audits are welcome, so long as they do not constitute political meddling." You know where I stand on this.
• I note a good point he made on political influence via appointments to the Fed. Governors have 14 year terms which are staggered; however, most governors do not stay for 14 years and replacements are only appointed to complete terms, not get their own 14 year term from the start. This has effectively shortened terms and increased political influence. I talked about this a little two years ago when Sen. Dodd held up appointments to the Federal Reserve, waiting for a Democrat to take the White House. Glad to see he picked that up.
• On regulation, he stated the common Federal Reserve line that the Fed had limited visibility of the financial crisis. Only 12% of of banks and 14% of financial assets were in institutions primarily regulated by the Fed in January 2007. The financial landscape has many institutions, and the Fed regulates only one of those. Yet it is lender-of-last resort to all. Many will scoff at this as a facile dodge of responsibility. But there are two points to be made: One, we can't use the term "the banks" to mean financial markets any more, since most financial firms aren't banks. Second, if the Fed actually could have controlled these institutions, why is the Congress debating how much additional authority to give the Fed?
• Every time I see this graph, I'm still surprised. I don't know why I am, but I am. While much of that will wind up, the part that represents agency MBS purchases, Bullard noted, will not. It's a big piece.
  
• I posed a question to him about whether the Federal Reserve's response to regulatory problems or to the financial crisis were influenced by the dual mandate the Fed has, vis-a-vis the sole mandate of the ECB or many other OECD central banks. He replied it did not -- they pretty much all behave the same way regardless of the mandate. He then ventured further to comment on whether the Fed should respond to asset bubbles. This has been a theme with him in the past, and he reiterated his view that the Fed has very limited tools to pre-empt bubbles.

Off to finish my duties -- see you tomorrow.

Labels: economics, SCSU