Arrogance and Authority

It is increasingly common to hear prominent US and European central bankers claim, with respect to the crisis of 2008-10, essentially the following verdict: “We did well.” But this arrogant claim merely undermines central bankers' credibility, which, ultimately, is the only basis of their authority.

WASHINGTON, DC – It is increasingly common to hear prominent American and European central bankers proclaim, with respect to the crisis of 2008-2010, the following verdict: “We did well.” Their view is that the various government actions to support the financial system helped to stabilize the situation. Indeed, what could be wrong when the United States Federal Reserve’s asset purchases may have actually made money (which is then turned over to the US Treasury)?

But to frame the issue in this way is, at best, to engage in delusion. At worst, however, it creates an image of arrogance that can only undermine the credibility on which central banks’ authority rests.

The real cost of the crisis is not measured by the profit and loss statement of any central bank – or by whether or not the Troubled Asset Relief Program (TARP), run by the Treasury Department, made or lost money on its various activities.

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