A parable

Red fox. Picture from Skandinavisk Dyrepark, D...

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One night while sleeping soundly, a farmer was awoken by the sounds of a struggle coming from the hen house. Grabbing his shotgun, he raced outside to see what was happening. Before entering the hen house, he knocked on the entrance and cried out, “Who’s there?” A fox’s voice responded, “There ain’t nobody here but us chickens.” Greatly relieved but deceived, he returned to his bed in the farmhouse. Next morning, his wife went early to the hen house to collect eggs for breakfast and found only a few feathers; no chickens and no eggs.

In the years preceding the crash and the beginning of the Great Recession, the Federal Reserve was asleep in Washington, DC and New York. One morning, the bankers living on Wall Street approached the Federal Reserve and demanded a trillion, make that two trillion, dollars because they were in danger of failing and needed the money to survive. The Federal Reserve gave them all they asked for. When the Federal Reserve proposed increased regulation and oversight, the bankers said no. Increased regulation would cost jobs. “We have done nothing wrong, and if we have, we promise never to do it again.” Then the Federal Reserve went back to sleep again because all was well.

The lesson from this tale is that both foxes and bankers require oversight and regulation.

Griftopia, Goldman-Sachs

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