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In Fed We Trust?

The Fed: The Insider Story of How the World's Most Powerful Financial Institution Drives the Markets By Martin Mayer The Free Press, June 2001

AS A NATIVE Californian who went through the quake of '94, I've felt a world that for decades appeared solid suddenly shake apart and seem flimsy from that point on. That's how you may feel about the financial world after reading Martin Mayer's The Fed. Mayer's latest of 18 books recounts the Fed's role in the panics of recent years, depicting the Fed's power as more theatrical than actual.

According to Mayer's uneven account, which vacillates between gossipy insider stories and dry detail, the Fed is the "umbrella supervisor" for everything financial, but knows and cares little about insurance, securities and, especially, derivatives. It is owned by the very banks it is supposed to regulate, and has a vested interest in paper checks over vastly superior electronic payments. If Mayer's credible reports are to be believed, the Fed exists more for its own sake than for the American economy.

The author makes the case that banks (run by CEOs) are much less important than markets (run by emotions, like panic), which causes bankers to want to hold back the bad news even as advocates for transparency have their say. Mayer admires Greenspan, and gives the impression that the Fed will not be as effective in the future, after he is gone.

In contrast to two other books I've read on The Fed, the bank is described here as a creature of Congress. The Creature from Jekyll Island, meanwhile, made the Fed out to be a creature of robber barrons, while William Greider's Secrets of The Temple: How The Federal Reserve Runs The Country made it seem like a creature of the executive branch.

All in all, The Fed is the best face that can be put on a depressing situation while still stating the facts. Read it only if you can sleep well amidst uncertainty, because the Fed's major power, like that of the wizard of Oz, is that people think it knows all and has the power to move markets, when, increasingly, it is out of the loop on major trends.
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Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Review; Fed: The Insider Story of How the World's Most Powerful Financial Institution Drives the Markets
Author:Lightman, Alex
Publication:Chief Executive (U.S.)
Article Type:Book Review
Date:Aug 1, 2001
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