For the first time in over fifty years, the Federal Reserve is now chaired by someone who speaks candidly, often, and with real concern about the plight of America's poor. Ron Paul has called her "very dangerous," unsurprisingly, but The New Yorker and The Guardian seem to like her. Who's correct?
Oh. Also, she is a lady. The new chair of the Federal Reserve, Janet Yellen, is the first female human to ever have the job. She's also, as you may have heard, a millionaire, because unlike you she is "good with money." Yellen was born in the Bay Ridge neighborhood of Brooklyn to working parents, a doctor and an elementary school teacher, until a tragic accident necessitated that Yellen's mother begin chauffeuring her father around for his medical practice.
As Yellen told the New Yorker, "I think the experience of the Depression greatly influenced the way they thought about the world."
Yellen's mother played the stock market, and under her example Janet Yellen became a very successful academic economist with a nice little nest egg of million-dollar stock funds and bond funds, plus $15-to-$50k in collectible stamps.
Nicholas Lemann's profile of Yellen late last month in the New Yorker is full of these gentle, endearing anecdotes. It's decidedly warm, if (perhaps) overly generous:
[Yellen] went to Brown University, thinking she would pursue math or science (her only sibling, John Yellen, is the director of the archeology program at the National Science Foundation), but she wound up majoring in economics, which she talks about as if it were one of the helping professions. "What I really liked about economics was that it provided a rigorous, analytical way of thinking about issues that have great impact on people's lives," Yellen told me. "Economics is a subject that really relates to core aspects of human well-being, and there's a methodology for thinking about these things. This was a very appealing combination to me. Market systems are capable of massive breakdowns that can result in long, devastating periods of high unemployment. And I felt that economists had really learned something about how to address that."
So cute, right? Janet Yellen is like the aunt who gave you that savings bond or Nestlé® stock for your 12th birthday.
As Fed chair, maybe she will actually tame "the Creature from Jekyll Island," turning it into a nice Maurice Sendak children's book monster. Not so much in the way that libertarian anti-Fed paranoids would like—i.e. by simply "Ending the Fed," or at least curbing its "license to print money" and thus devaluing our precious, precious dollars—but by sticking to her expressed desire to wield the Fed's powers toward the cutting of unemployment rates. Sorry, John Birch Society conspiracists, Ron and Rand Paul supporters, and all you Austrian school devotees. It's not like the Fed could ever do anything right by you.
Without question, Yellen was a better choice for Fed chair than the total jerk that was widely believed to be Obama's first choice, Larry Summers: a derivatives trading- and deregulation-happy garbage person, who has never looked like the good guy ever, except for that one time, while president of Harvard, when he was pitted against the Winklevoss twins.
People have gone back and forth on what to make of Yellen's prior policy stances. In the 1990s when appointed to be the chair of Clinton's Council of Economic Advisers, she backed a bunch of then-popular "free market" economic policies, like the repeal of Glass-Steagall, NAFTA, and a new metric for Social Security that was intended to lower payments meted out to seniors. No one really associates her with any of this stuff, though, because as Lemann notes, "Yellen doesn't leave footprints." Instead, she's developed a great reputation for being "over-prepared," a conscientious listener, and someone with a talent for quietly building consensus. She also predicted the housing bubble under Bush, and pushed for preventative measures to address the consequences. Good on her.
But, while these suggest mostly decent leadership credentials, the Federal Reserve needs someone with a little more moxie and a little more fight right now. In the wake of the financial collapse and the passage of Dodd-Frank, the Fed has now been given the onerous task of making sure that all the "too big to fail" financial actors either scale down or establish actionable liquidation plans—"living wills" that will ensure that there are mechanisms in place to prevent a major failure at one of these firms from dragging down the whole economy (again).
Dodd-Frank gave the Fed some pretty mighty powers to enforce this provision, including the power to do some Teddy Roosevelt-style trust busting, but since its enactment in 2012, it doesn't seem to have been flexed all that much.
And, judging from this recent exchange between Senator Elizabeth Warren and Janet Yellen—at a July Senate Banking, Housing and Urban Affairs hearing—it does not sound like she's been particularly aggressive on this issue during her first six months on the job:
Warren points out that Lehman had $639 billion in assets at the time of the 2008 meltdown and that—today—JPMorgan is even more of a frightening behemoth: $2.5 trillion in assets and 3,391 subsidiaries (15 times the number that Lehman had).
Even if you peel back and try to make some handicap adjustments for the usual Senate committee hearing grandstanding, this exchange looks just terrible for Yellen. Multiple times she talks about her understanding of Dodd-Frank and her interpretation of the law as being "iterative" and the Fed's giving "feedback" to the big banks. She speaks as if enforcing these government requirements were like running the outpatient group therapy program at a methadone clinic. In short, she's being the wrong kind of nice, to the wrong people, at the wrong time.
Is she secretly being tougher behind the scenes?
Sherrod Brown, a Democratic senator from Ohio who (along with Warren, frankly) was instrumental in getting Yellen this job, intimated to the New Yorker that Yellen was much more direct about the scope of the problem in private conversations. That's something.
We're going to get a good sense of things pretty soon. Next week, at a global central bankers' conference in Jackson Hole, Wyoming, Yellen is scheduled to give a keynote address and is expected to make the case for her policy of focusing on unemployment, keeping interest rates low, and worrying about any inflation issues later. Reports are that Yellen has totally disinvited most of the big Wall Street names, a move that's either a genius method of keeping their influence out, or a sign of an alarmingly non-confrontational politesse, maybe even cowardice.
If it turns out that Yellen is just too damn nice to wield her newly ordained power under Dodd-Frank, and bust some skulls over at Goldman Sachs, or to stick to her policy guns, then (ha, ha; I'm gonna write this.) Ron Paul may be correct.
This lady could be very dangerous.
[Photo: Charles Dharapak for AP]