by Pam Martens and Russ Martens, Wall Street on Parade:
After lamenting in a recent book how Presidents George W. Bush and Obama didn’t answer his letters (Return to Sender: Unanswered Letters to the President, 2001-2015), Ralph Nader has finally been requited by a powerful person in Washington.
Nader had the temerity to write Fed Chair Janet Yellen a letter on October 30, pointing out how the Fed’s zero bound interest rate policy is crimping the spending ability of savers who rely on such things as savings accounts and money market interest for added income to survive. Yesterday, Yellen boldly answered Nader’s letter with a smackdown.
The letter has caused an outbreak of sexism charges against Nader by various writers for his suggestion in the letter that Yellen would be wise to “sit down with your Nobel Prize winning husband, economist George Akerlof, who is known to be consumer-sensitive.” Annie Lowrey at New York Magazine said it suggested Yellen needed things mansplained to her “small lady brain” lest there be “cryfests” and “emotional overeating” at the nation’s central bank.
A number of writers have dismissed Nader’s letter as nonsense. In fact, there is a large segment of seniors who can’t afford to risk their meager life savings in the stock market, who have historically relied on the interest from insured money market accounts, insured certificates of deposit, and U.S. Treasury notes and bills to supplement their pension or Social Security benefits. Those individuals have seen that income cut by half or more since the 2008 crash and the Fed’s slashing of interest rates.
But what about economist George Akerlof? Might he actually have something important to share with Janet Yellen and the rest of us for that matter? In fact, Akerlof has co-authored a recent book with a theory that, taken to its logical conclusion, casts a dangerous light on the very institution his wife heads, the Federal Reserve.
The book, Phishing for Phools: The Economics of Manipulation and Deception, by Akerlof and Robert Shiller, explores “reputation mining” as an underlying cause of the 2008 crash. For example, when iconic, century old Wall Street banks bundled securities and received triple-A ratings from century old, respected ratings agencies like Moody’s and Standard and Poor’s, the investing public believed these were worthy investments even though the underlying assets were subprime mortgages, including mortgages given to NINJAs: No Income, No Job or Assets.
Akerlof and Shiller dig into the weeds of how the financial industry incentivized employees to keep this corrupt system afloat and the structural changes on Wall Street, like investment banks going public and no longer having their own capital at risk, that led to a gambler’s mentality across the industry.
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