Is the Fed to blame for the financial crisis and its aftermath? That’s the question asked by a new documentary film opening today, entitled Money for Nothing: Inside the Federal Reserve. I discussed the film with Princeton professor Alan Blinder, who is a featured expert in it, today on WNYC’s Money Talking. It’s a fascinating question to ask on the fifth year anniversary of the financial crisis, as well as the centennial of the Fed itself, not to mention the eve of the appointment of a new Federal Reserve chief.
Money for Nothing very much wants to be the new Inside Job—it’s got the scary music, the expert interviews with people like Blinder, as well as other former and current Fed insiders including Peter Fisher, Tom Hoenig and Janet Yellen. (It also uses decades of TIME covers and stories, including mine from August of 2011, to narrate the history of the Fed and monetary policy in the US.) And, like Inside Job, it goes a long way to explaining the history of the Federal Reserve’s easy money policies, which have reached their apex in the current multi-trillion dollar asset buying program known as “quantitative easing,” which poses risks that many big name investors, like the folks at PIMCO, have been fretting about for some time.
But unlike Inside Job, which made a very strong case for why some bank CEOs should have gone to jail post crisis, Money for Nothing doesn’t convince me of its central premise—that the Fed itself is responsible for the underpinnings of the crisis. Sure, keeping interest rates at or near zero for decades on end creates an environment that encourages leverage and risk. But at the end of the day, neither Alan Greenspan—who is indeed a crucial figure in the intellectual underpinnings of pre-crisis, laissez-faire monetary policy—nor current Fed chief Ben Bernanke forced Wall Street to indulge in the sort of risk that caused the crisis. (For more on that, check out my cover story this week.). They did that all on their own. You could argue that the Fed, as the nation’s top banking regulator, should have done more to police bad lending policies in the mortgage market in the run up to the crisis. And you could argue that it should be doing more to re-regulate the banking industry now. That’s why it’s so crucial who the next Fed chief will be. To read my thoughts on why that should be Janet Yellen, check out this column.