(Prof. Gintis excepted)
From Jason Zweig writing at the Wall Street Journal's Total Return blog:
The Anti-Bernanke’s Early Warning on Quantitative Easing
No one remembers Melchior Palyi today, but decades ago the great University of Chicago economist saw the future more clearly than most economists even see the present.That "crystalline clarity" link is worth a click, it pops out at Mr. Zweig's WSJ column, The Intelligent Investor.
Palyi, a former chief economist at Deutsche Bank and chief economic adviser to the Bundesbank during German reconstruction in the 1920s, had a profound distrust of centralized authority and of judgments that weren’t subject to the discipline of market competition.
He also had a devilish sense of humor and what some people today might regard as a touch of paranoia about the potential for government power to spiral out of control. But, considering that he had survived hyperinflation and the rise of the Nazis, that’s understandable.
He warned with crystalline clarity that the enshrining of credit ratings as a measure of safety in banking regulations would eventually lead to an explosion of risk.
Palyi also discussed the potential hazards of market support by central banks. His essay “Open-Market Policy and Totalitarian Control” opens with this unforgettable (and politically incorrect) image:
“The reputation of a lady is seriously endangered if she ‘goes out’ to get a husband instead of waiting for one. Similarly, a bank is not supposed to run after the customers.”
Palyi goes on to warn about the risks of what he called the “fire-extinguishing function” of central-bank actions to stem financial crises by “manipulating and directing the volume of available credit.”...MORE
