Monday will mark the centennial of the passage of the Federal Reserve Act, which created what is now the most important economic institution in the world.
To mark the occasion, we’ve compiled the 15 most YOLO — which stands for You Only Live Once, and means throwing all concerns overboard — moments over the course of the Fed’s 100 years.
You would think that a body composed of economics and maths Ph.Ds that conducts most of its operations on a computer would be devoid of drama.
You’d be wrong.
Check it out.
The Time The Contours Of The Fed Were Decided In Secret
The idea to found the Fed was hashed out in secret over nine days in 1910 on a remote enclave off the coast of Georgia called Jekyll Island, owned by J.P. Morgan. Then as now, bankers were not the most well-loved people in America, so the participants traveled down to Brunswick slightly incognito, only referring to each other by first name. One of the men, a naturalized German industrialist named Paul Warburg who a key driving force for the Fed’s creation, brought a shotgun on the train down to look like a duck hunter, despite never having dressed an animal in his life.
Source: Neil Irwin, “The Alchemists”
The Time We Almost Had A Cincinnati Fed
One of the original proposals for the Federal Reserve banking system was to place a Federal Reserve Bank in Cincinnati. It would have covered Ohio, Kentucky, and Indiana. It even made it into a final round of voting. But for practical and possibly political considerations — one academic says local bankers charged political bias against Cincinnati’s historic Republican leanings — Cinci was placed under the control of Cleveland.
Source: St. Louis Fed
The Time Fed Officials May Have Gotten Wasted On Their Way To Bailing Out Cuba
Around 1920, the Fed decided it would open a branch in Havana, a major American tourist destination. Management of the office was split between the Atlanta and Boston feds. In 1926, Cuba’s banking system began teetering, and the Fed decided it would step in to prop it up. 40-two pouches of registered mail were packed into the gunboat “Cuba,” which took off at 5 pm on April 11 from Key West.
]The bank run was stanched, but the drama ended up jumping back stateside, when Washington began investigating charges that, “on the way over from Key West to Havana the entire party from Atlanta became intoxicated” and that they arrived in Havana “in a disgraceful condition.”
The inquiry ultimately proved inconclusive, but the deputy governor of the Atlanta Fed lost his post.
Source: Atlanta Fed
The Time The World’s Central Bankers Met In Secret On Long Island To Decide The Fate Of The World
In 1927, the world economy was already showing signs of stress. So the heads of the central banks of France, Germany, and England, along with New York Fed President Benjamin Strong rented out the home of a U.S. Treasury official in Glen Cove, Long Island to try to work out a solution. The outcome of the meeting was inconclusive, though we obviously know what happened later — the stock market crashed.
But Strong pointedly cut out anyone from the Federal Reserve in Washington from attending, having deemed world finance his realm.
Source: “Neil Irwin, The Alchemists”
The Time A Sitting Fed Chairman Contemplated Buying The Washington Post
Ben Bernanke has said that it was Meyer’s Fed that prematurely ended what had obviously been a successful open-market securities purchasing program to stanch the Great Depression, causing the economy to relapse in 1932. Partially as a result, when President Roosevelt took power in 1933, he forced Meyer out. Meyer’s next move? Buying the then-near-bankrupt Washington Post at a fire sale a month after leaving his post. So we have the prospect of a sitting Fed Chairman contemplating buying a major media outlet.
Source: St. Louis Fed
The Time The Fed Got A 100,000 Bill
In 1933, the U.S. economy had entered a deflationary spiral — no one was buying anything, and everyone was hoarding gold. To address the situation, President Roosevelt ordered the country to turn over their gold supplies. He also sought to take control of the Fed’s gold supplies. Once gold was out of circulation, Roosevelt could better enforce his plan to reflate the economy.
The cost of this would be the temporary end of Fed independence. Fed Chair Eugene Black was sympathetic, but figured the decision was best left to Congress. On Jan. 30, 1934, Congress passed the Gold Reserve Act and officially directed the Treasury to take over the Fed’s gold holdings. To pay for them, a 100,000 bill featuring Woodrow Wilson was printed.
Source: St. Louis Fed
The Time The Fed Got Its First Fed Chair From Out West — And It Turned Out He Was One Of The Best
Marinner Eccles was born into a prominent Mormon family in Logan, Utah — his father David founded and was the state’s first multi-millionaire. Although he grew up with money, he ended his formal education at age 18 and went into business; by age 22 he is said to have made his first million. By sheer coincidence, he caught the attention of Stuart Chase, a well-connected national publicist, who happened to hear some of his speeches in Utah. Chase hooked him up with a close adviser to Roosevelt, and Eccles was invited to serve in the president’s cabinet in 1933. Within a year, at the age of 44, he was appointed Fed Chair.
Eccles served through Roosevelt’s death and into the beginning of Harry Truman’s administration. A Keynesian, Eccles also made sure the government had access to to cheap financing to enact Roosevelt’s New Deal program. Eccles was also the principle architect of the current Fed structure, centralized the Fed’s power into the Washington-based Board of Governors. The Fed’s main building is now named after him.
The Time Arthur Burns Got Bullied By Richard Nixon
Nixon had sometimes blamed Martin’s fiscal hawkishness on his failure to beat John Kennedy in 1960. So when he came up for reappointment in 1970, Nixon declined to reappoint him. Instead he tapped Arthur Burns, he president of the National Bureau of Economic Research.
As with anyone else in his ostensible administration, Nixon demanded complete fealty to his whims, and transcripts show the president repeatedly telling Burns he wasn’t doing enough to boost the economy despite Burns’ repeated warnings about the unforeseen impact of looser monetary policy. Nixon would later plant a negative story about Burns in the press that he was asking for undue salary raise at a time of economic difficulty. Burns was eventually proven correct but appears to have lost sight of his initial reservations: inflation averaged 6.6% during his eight-year term.
The Time Paul Volcker Purposely Caused A Recession
This may be the most #YOLO moment in Fed history. To combat the inflation that had spiraled upward during Burns’ and his successor Bill Miller, Paul Volcker raised interest rates to as much as 16% (by comparison rates are now at 0%) and essentially took the economy into temporary recession. It’s not clear who first coined the phrase “shock therapy” to describe such drastic measures, but no one ever before Volcker purposely tanked the economy to save it.
Appointed in 1987, Greenspan presided over the alleged Great Moderation of the American economy, and until everything started going south toward the end of his term, was widely credited with driving those gains. But he is now viewed by many as having been overly complacent about excessive growth, having done nothing to curb the “irrational exuberance” he himself called out in the mid-90s and which led to the 2000-2001 recession, and failing cool last decade’s housing boom or reign in large financial institutions.Basically if you had a sexy, crazy ’90s (Greenspan married journalist Andrea Mitchell during his term; he was also obsessed with Y2K) and then were forced to sober up in 2008, you lived the Greenspan Experience. He has since admitted some of his errors, but many hard not to look back on his administration as an intense period of kool-aid drinking.
The Time Paul Volcker’s Love Of Fly Fishing Reshaped Economic History
The Kansas City Fed began holding an annual banking conference in 1978. For the first three years of its existence, almost no one showed up. So in a bid to entice higher-profile names, KC Fed officials decided to hold it in Jackson Hole, Wyo. — the main vacation destination of then-Fed Chair Paul Volcker, who reveled in the area’s world renowned fly fishing. It worked, and the remote town has hosted the most important economics conference in the world every August ever since.
The Time The Fed Held The Funniest FOMC Meeting Ever Recorded Just Months Before The Great Recession Began
When you search Fed transcripts, you find a surprising amount of “laughter” recorded. By conventionally standards, the jokes are pretty lame, but it shows Fed governors and presidents are not so uptight as you’d imagine. The FOMC meeting that recorded the most instances of laughter, however, is somewhat ominous: at the June 27-28, 2007 meeting, there were 81. The average is usually around 40. Six months later, the economy officially entered recession.
The Time Brad Pitt’s Baby Appeared In An FOMC Meeting
They say Washington is Hollywood for ugly people, but one day in 2006, Hollywood actually entered the Fed record. The housing market was already showing signs of cracks — and everyone was wondering what to do about it. Dallas Fed President Richard Fisher, arguably the most colourful Fed president, said he’d heard from one CEO that “only subject that has been more analysed than the housing situation is the birth of Brad Pitt’s baby. “
Source: Federal Reserve
The Time Bill Gross Got Called An “Addled” “Oddball”
In 2006, inflation had begun levelling off, which economists weren’t expecting. Dallas Fed President Richard Fisher cited comments made by PIMCO bond fund chief Bill Gross that this was perhaps some cause for concern.
“One need look no further than this morning’s Financial Times editorial or Bill Gross’s recent client letter — I’ve known Gross for 20 years, and I know he’s an oddball. Actually, I’d like that word struck from the record. [Laughter]
MR. MOSKOW. What do you want to substitute? [Laughter]
MR. FISHER. He’s increasingly addled, but his words do carry weight. In his recent client letter, he says, “Inflation is levelling off at admittedly unacceptable levels.”
Source: Federal Reserve
The Time A Fed Economist Missed The Recession And Swore He Wasn’t On Drugs
The NBER has now determined December 2007 was the month when the Great Recession began.
Fed Chief Economist David Stockton did not see it that way at the time.
Here is what he said, according to the FOMC transcript from that month:
“Despite all the financial turmoil, the economy avoids recession and, even with steeply higher prices for food and energy and a lower exchange value of the dollar, we achieve some modest edging-off of inflation. So I tried not to take it personally when I received a notice the other day that the Board had approved more frequent drug-testing for certain members of the senior staff, myself included. [Laughter]
“I can assure you, however, that the staff is not going to fall back on the increasingly popular celebrity excuse that we were under the influence of mind altering chemicals and thus should not be held responsible for this forecast. No, we came up with this projection unimpaired and on nothing stronger than many late nights of diet Pepsi and vending-machine Twinkies.”
Source: Federal Reserve
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