Power and Politics in Banking Today

Balance sheet explosion from $1T to $9T

The Fed grew from under $1 trillion before the 2008 financial crisis to $9 trillion at its peak during COVID through quantitative easing and emergency lending facilities.

From background player to 'only game in town'

Central banks have moved from obscure institutions to front-page news, increasingly stepping in to solve fiscal problems when politicians refuse to act.

Warsh's decade of dissent

Kevin Warsh, now nominated for Fed Chair, resigned from the Board of Governors over post-2008 expansions and spent 11 years warning Stanford students about Fed overreach.

Black box banks evade scrutiny

The largest institutions like JP Morgan Chase operate as opaque entities where even sophisticated investors cannot assess true risk from 300-page disclosures filled with netted derivatives.

Regulatory failure without consequence

The Fed repeatedly fails as a regulator—from mortgage oversight before 2008 to Silicon Valley Bank in 2023—yet faces no accountability while retaining authority over the biggest banks.

Too big to fail became universal

The distinction between liquidity crises (warranting intervention) and solvency crises (warranting failure) has collapsed, creating an implicit guarantee that the Fed will save any major institution.

Financial stability handcuffs interest rates

During the 2023 banking crisis, the Fed could not raise rates further to combat inflation because high interest rates were simultaneously threatening to collapse the banking sector.

Independence eroded by mission creep

The Fed has ventured into climate policy and fiscal territory far beyond its monetary mandate, inviting political pressure from both parties and undermining the credibility essential to independence.

Emergency lending lacks transparency

Current interventions lack clear proof that recipients face temporary liquidity problems rather than insolvency, violating the classic Bagehot rule and exposing taxpayers to hidden fiscal risks.