Even Bigger Conflicts, Of Rational Self-Interest

Clinton: well, because Hillary is a candidate, I would be happy to offer an opinion if she weren’t a candidate. But I think it would be wrong to do so because she is. However, I will say this. Janet Yellen, Lael Brainard, whom I know, several others—these are really smart people and they’ll do what they think is right. And i think the political emphasis is overrated because I think whatever happens is if that they think is right economically will be manageable economically at this point. But it’s been a perplexing time. There was a very long tail on this financial crash that explains most of the road rage in the American electorate and much around the world. And so, we just finally had one good year-on-year report on rising per capita income. 5.2 percent. And family incomes. About 2.5, I think. So what they’ll do is they’ll look at that in the long-term numbers, and they’ll see whether they could actually if they’ve got longer term growth, would it actually help to tick up interest just a tad, or should they leave it where it is because in spite of the growth figure, the jobs figures are not still robustly growing so much. They got more data than i do. I trust them to make the decision.

Source:  Read Bill Clinton’s full interview about the Fed, his foundation and US jobs  |  CNBC

Credit goes to the readers – you guys are a really astute bunch.  After my recent article detailing Janet Yellen’s response to a query on Lael Brainard’s conflicts of interest at the Fed was picked up by ZeroHedge, someone questioned why I had not included Bill’s commentary on Brainard and Yellen in the above interview with CNBC.  I hadn’t even seen the interview in the first place.  And, after looking closely at Bill’s interview… I’m kicking myself for not seeing it and including anything on his commentary.  The conflicts of interest at the Fed clearly go beyond prior employment and campaign contributions.

So, on one hand, you have the Clinton campaign.  Not only has Brainard worked for Bill Clinton’s administration in the past, she has contributed to Hillary’s campaign.  In Bill’s recent interview, he specifically mentioned Brainard, out of all of the other FOMC members, by name.  Obviously there would be no mention of hawkish FOMC members such as Jeffrey Lacker and James Bullard, whose hawkish attitudes towards rates directly contradict the Clinton campaign’s platform.  However, there was no mention of William Dudley or Daniel Tarullo, two of the FOMC members who could possibly be even more dovish than Brainard is.  Bill Clinton went out of his way to mention Brainard, the one FOMC member who has prior connections to the Clintons and has been touted as a possible Treasury secretary should Hillary win the Presidency.  Bill is so brazen about this conflict, that he mentions it immediately after stating that he can’t offer an opinion because his wife is running for the Oval Office. 

On the other hand, you have the Trump campaign.  Trump has openly stated that he thinks Janet Yellen is doing a bad job, and would “most likely” replace her if he wins the election.  He has said that he thinks Yellen “should have raised rates”, and that “she’s not doing it because the Obama administration doesn’t want her to”.   How exactly is the Fed doing anything but a biased job, especially in light of the contributions to the Clinton campaign?

Imagine a similar situation occurring in your workplace.  Your current boss is leaving, and you and the remaining employees get to choose between two replacements, but are not permitted to show any bias in your work or personal life towards either one of them.  One says you are doing a good job and would promote you, and one says you are doing a bad job and will not promote you, and might try to fire you.  Wouldn’t you be naturally inclined to work towards getting your coworkers to vote for the one who says you are doing a good job, just on the basis of rational self-interest?  Wouldn’t you do everything you could to bend or even break the rules, just in the interest of survival and keeping your job?

My sentiments exactly. 

On September 12th, the day after Hillary Clinton’s health episode, Brainard gave a previously unannounced speech at the Chicago Council on Global Affairs.  In what could be described just as aptly as a campaign event as much as a speech from a Federal Reserve board member, Brainard predictably did just as the Clintons wanted, and stated that the Fed should keep rates low.  The market reaction was predictable, with the S&P rising to close ~31 points, or 1%, higher on the day.  So not only did Brainard effectively campaign for Hillary and take some of the attention off her health episode, she did so in the face of her mandate as a Fed board member to remain politically unbiased.

Brainard not only displayed a conflict of interest by donating to the Clinton campaign in the first place, she basically used her position to give a stump speech for Hillary.  

Still, you can only be so surprised at what Brainard and Yellen are doing.  Not only did they make sure to keep rates flat and goose the stock market in time for the election, they’re effectively campaigning for Hillary, as they know they might need her to win just to continue in their current roles.  Yes, I know that Yellen has said the Fed expects to raise rates in December, just after the election, but do you really believe that will happen?  It’s not like it would be the first time that Yellen has backtracked on a rate increase.  How would she react with an equally dovish Treasury secretary in Brainard imploring her to keep rates flat throughout a Clinton Presidency?

Again… my sentiments exactly.