How A Handful Of Unsupervised MIT Economists Run The World

Tyler Durden's picture




 

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people, explains why.

From the WSJ:

Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

 

The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world's biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world's economic output.

 

Of late, these secret talks have focused on global economic troubles and the aggressive measures by central banks to manage their national economies. Since 2007, central banks have flooded the world financial system with more than $11 trillion. Faced with weak recoveries and Europe's churning economic problems, the effort has accelerated. The biggest central banks plan to pump billions more into government bonds, mortgages and business loans.

 

Their monetary strategy isn't found in standard textbooks. The central bankers are, in effect, conducting a high-stakes experiment, drawing in part on academic work by some of the men who studied and taught at the Massachusetts Institute of Technology in the 1970s and 1980s.

 

"Will history decide they did too little or too much? We don't know because it is still a work in progress," said Kenneth Rogoff, an economics professor at Harvard and co-author of a book, "This Time Is Different," examining financial crises over eight centuries. "They are taking risks because it is an experimental strategy."

 

Three of the world's most powerful central bankers launched their careers in a building known as "E52," home to the MIT economics department. Fed Chairman Ben Bernanke and ECB President Mario Draghi earned their Ph.D.s there in the late 1970s. Bank of England Governor Mervyn King taught briefly there in the 1980s, sharing an office with Mr. Bernanke.

 

Many economists emerged from MIT with a belief that government could help to smooth out economic downturns. Central banks play a particularly important role in this view, not only by setting interest rates but also by influencing public expectations through carefully worded statements.

 

While at MIT, the central bankers dreamed up mathematical models and discussed their ideas in seminar rooms and at cheap food joints in a rundown Boston-area neighborhood on the Charles River.

 

Over Sunday dinners in Basel, which often stretch to three hours, they now talk of pressing, real-world problems with authority. The meals are part of two-day meetings held six times a year at the BIS. Dinner guests include leaders of the Fed, ECB, Bank of England and Bank of Japan, as well as central bankers from India, China, Mexico, Brazil and a few other countries.

The same BIS, incidentally, which is an employer of "The People Bringing You Currency Manipulation On A Daily Basis" whom we described in April.

The role of the Bank for International Settlements has broadened since it was formed in 1930 to handle reparation payments imposed on Germany after World War I. In the 1970s, it became the center of discussions on bank capital rules. In the 1990s, it became the meeting place for central bankers to talk about the global economy.

It is also the place where the coordination of all the real trading these days: that conducted by central planners of course. Most importantly, it is responsible for perpetuating the status quo.

As for our unsung MIT heroes...

The 18-member group, formally known as the Economic Consultative Committee, has only once issued a public statement: a two-line missive in September, promising to look for solutions in interbank lending markets, responding to allegations that some private banks had conspired to manipulate the Libor interest rate.

 

On Mondays after the dinner, the bankers join a larger group of central bankers at a large round table on a lower floor of the BIS building, which is shaped like a rook chess piece. Staff members sit nearby at desks decorated in white leather.

...

The Bank of England's Mr. King leads the dinner discussions in a room decorated by the Swiss architectural firm Herzog & de Meuron, which designed the "Bird's Nest" stadium for the Beijing Olympics. The men have designated seats at a round table in a dining area scented by white orchids and framed by white walls, a black ceiling and panoramic views.

 

"It is a way in which people can talk completely privately," Mr. King said in an interview. "It is a big advantage if you have some feel for how central banks think about questions, what they're likely to do in the future if certain events were to occur."

 

Serious matters follow appetizers, wine and small talk, according to people familiar with the dinners. Mr. King typically asks his colleagues to talk about the outlook in their respective countries. Others ask follow-up questions. The gatherings yield no transcripts or minutes. No staff is allowed.

The punchline: a handful of people from MIT, deeply steeped in economic theory (not practice), the same people whose actions incidentally were responsible for the first great financial crisis, and who yield more power than any potenate in the history of the world - people who, as the ECB showed in the case of Berlusconi, can take down presidents and PMs with the flick of a switch, meet in private. No transcripts or buttlers are allowed.

In other words, they are accountable to absolutely nobody.

Which is to be expected: after all they are conducting the greatest experiment in monetary, geopolitical and social history. If they fail... when they fail, everyone loses.

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Wed, 12/12/2012 - 10:18 | 3055491 WhiteNight123129
WhiteNight123129's picture

Experimental? It is well know, ask students of history, they know very well what happened with the first 400 million of assignats, then second, and third and fourth etc... Nothing new here.

 

Wed, 12/12/2012 - 10:19 | 3055492 Antifederalist
Antifederalist's picture

"If they fail, when they fail, everyone loses"

Yes and no.

Holders of gold, silver and real assets may see a net gain. Certainly a relative gain.

Wed, 12/12/2012 - 10:33 | 3055555 northerngirl
northerngirl's picture

They will make owing any real asset illegal.  It's been done before with gold, they will just expand the scope next time. 

Wed, 12/12/2012 - 10:39 | 3055594 LawsofPhysics
LawsofPhysics's picture

Yes, and the "success" in enforcing such a decree will be the same as before.

Wed, 12/12/2012 - 10:44 | 3055624 toomanyfakecons...
toomanyfakeconservatives's picture

Bullshit... everything is illegal... so many unenforceable laws that exist on paper.

 

"They" are the ones going to the FEMA camps in chains and orange jumpsuits. Get with the program. Revolution is in the air and our fragile, illegitimate government is on it's last legs.

Wed, 12/12/2012 - 11:07 | 3055738 trav777
trav777's picture

Drugs have been illegal for a long time, which is why you can't find them anywhere.

Fed Court just struck down IL's CCP ban, btw....the nation is presently fragmenting and the Federal Courts are often nearly at each other's throats in terms of jurisprudence.  The States have had enough of the Feds as well and are increasingly passing their own laws in direct opposition to DC's edicts.

Wed, 12/12/2012 - 13:02 | 3056209 DaveyJones
DaveyJones's picture

now if they could just move that to a currency

Wed, 12/12/2012 - 21:02 | 3057954 Mike in GA
Mike in GA's picture

Good points all..."the nation is presently fragmenting..." describes perfectly the early fracturing leading to breakdown of the complex system known as our Federal Gov't.

Once begun, it's a safe bet the breakdown will be like cornering a wounded animal - unpredictable, violent and swift.

Wed, 12/12/2012 - 22:30 | 3058171 centerline
centerline's picture

You mean the cornered animal flips out and goes tazmanian devil on everyone?

I cornered a stray kitten once.  All cute and little.  The damn thing nearly shredded my hand once I grabbed it.  lol.

Wed, 12/12/2012 - 22:58 | 3058238 Mike in GA
Mike in GA's picture

LOL Yup, just like that.  Everything's cool until all of a sudden it isn't. 

Imagine worldwide chaos at the collapse of the world's reserve currency and largest economy.  Everbody acting like that kitten.  Ouch.

Wed, 12/12/2012 - 14:08 | 3056065 XitSam
XitSam's picture

No. The collapse of the economy will ensure a hard time for every regular citizen whether they own PMs or not. That they may be better of than the next poor schlub does not mean they won.

Edit: I phrased this to mean the opposite of what I wanted. Fixed now. Common people all lose.

Wed, 12/12/2012 - 10:20 | 3055493 LawsofPhysics
LawsofPhysics's picture

What an insult to true engineers who work in the real world.  ECONomics is not a science, it's a con game, pure and simple.  Does anyone really believe what these motherfuckers have "engineered" is a market that allows for true price discovery?

Hang ever single one in public and maybe, just maybe, market CONfidence will come roaring back.

Wed, 12/12/2012 - 10:40 | 3055607 WhiteNight123129
WhiteNight123129's picture

+2

Those guys are phony PhD. Fullartong advocated to put successful retired bankers and speculators in charge. To that extent the only central banker worth something was Armindo Fraga. It was a great move to put him at the central bank of Brazil back in 2002. This scared the shit out of the speculators on the other side, they knew that the other guy on the other side is tricky. Bernanke is bland and dull and easy to figure out. Fraga did the good old raise the rates to the moon to the defend the currency, 101 banking school principles and he restored the Real.

 

Wed, 12/12/2012 - 10:49 | 3055648 Enslavethechild...
EnslavethechildrenforBen's picture

ALL Bankers are TERRORIST'S. HANG EVERY SINGLE ONE OF THEM..

Wed, 12/12/2012 - 12:28 | 3056082 XitSam
XitSam's picture

A group of despised people regularly meeting at a known time and place. Sounds like a opportunity for someone that has nothing left to lose.

Wed, 12/12/2012 - 20:59 | 3057947 Dave Thomas
Dave Thomas's picture

Right after all when you engineer something, it actually has to work. Not just fool people.

 

Wed, 12/12/2012 - 10:49 | 3055649 Sean7k
Sean7k's picture

What an insult to your intelligence. Who's running the world? Mechanical engineers?

Economists. Bankers. Scientists that study the engineering of mankind. 

Hang 'em? Sure, but to deny their brilliance is sheer ignorance. 

The world is one of labor and lords. Wealth and debt. Predators and prey. Calling them names will not change their position nor their machinations one little bit. Average humans lack the education, will and resources to change the paradigm. Only nature is capable of bringing the sky down upon their heads. 

We have only the opportunity to temper their fascism with good decisions and real investment. To make our lives reasonable in the midst of slavery. 

Wed, 12/12/2012 - 11:23 | 3055812 LawsofPhysics
LawsofPhysics's picture

No shit, and when fraud becomes the status quo, possession becomes the law.  Sorry did you have a point?  Any real suggestions you have on capital/asset preservation would actually be useful.

Wed, 12/12/2012 - 11:38 | 3055873 JimBowie1958
JimBowie1958's picture

I dont think his intent was to make suggestions so much as to share observations from which the suggestions naturally come to a thinking person all of their own obviousness.

Hang the bastards high and let the crows remove them.

Wed, 12/12/2012 - 13:08 | 3056225 DaveyJones
DaveyJones's picture

most empires' banking and finance arena ballons before the empire collapses

Wed, 12/12/2012 - 11:23 | 3055814 A82EBA
A82EBA's picture

plus 10 for you sir

Wed, 12/12/2012 - 11:18 | 3055774 crusty curmudgeon
crusty curmudgeon's picture

Economics may not be a hard science, but it is a science--and a very important one at that.  Indeed, it underlies every political issue there is.  And at its most fundamental basis, it is what allows us to separate free men from slaves.  Either men own the fruits of their labors or they do not.

It is what passes for economics that is the con game. 

Fixed.

Wed, 12/12/2012 - 12:39 | 3056120 centerline
centerline's picture

Social science.  And one that is constantly evolving as well.

What is taught and practiced is closer to dogma though... and stale.

Wed, 12/12/2012 - 13:51 | 3056443 crusty curmudgeon
crusty curmudgeon's picture

Those who shrug off economics as unimportant do so at their peril.

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. John M. Keynes (The General Theory of Employment, Interest, and Money)

Wed, 12/12/2012 - 22:39 | 3058189 centerline
centerline's picture

Agreed.  Just in case my point was not clear, mislabeling or misrepresenting something is quite dangerous.  Selling economics as a pure science akin to physics or chemistry is suicide.  Likewise, treating economics like it is some sort of orthodox religion is equally suicidal.

Furthermore, I purport that most economists are sorely lacking in both the social AND the science backgrounds to be anything less than dangerous in any position of signficant influence - because, for too long the profession has been sold like it is some sort of holy gospel.

A few, like those mentioned here, are bit more scary.  These are some smart cookies who have an inside edge on how things really work.  Alot of good or alot of evil can enimate from that sort of knowledge when put in a position power.  As much as any nuclear scientist.

Wed, 12/12/2012 - 20:04 | 3057810 TheFourthStooge-ing
TheFourthStooge-ing's picture

Economics is to science as medieval barbering is to medical care.

"There's nothing wrong with the [patient|economy] that a little more [bloodletting|debt] won't cure."

Wed, 12/12/2012 - 19:19 | 3057696 hooligan2009
hooligan2009's picture

economics is an art not a science...

 

http://thepopulation.com/detail.php?PostID=159&PostCategory=5

Wed, 12/12/2012 - 10:35 | 3055497 Bicycle Repairman
Bicycle Repairman's picture

When I meet someone from MIT I am reminded of what George Carlin said"

"...people who are just smart enough to run the machines and do the paperwork. And just dumb enough to passively accept all these increasingly shitty jobs with the lower pay, the longer hours, the reduced benefits,..."

No common sense.  A beautifully programmed mind.

Wed, 12/12/2012 - 10:47 | 3055637 SoNH80
SoNH80's picture

Not all.  One friend went there (mechanical engineering), was put to work at General Lockheed McDonnell-Boeing Dynamics desiging plastic mines or some such thing for the Viet Nam war.  He quit, and has worked as an expert machinist in the woods for 40 years.  Never regretted it.

It's a good place, MIT, but harnessing their work for the good is the challenge.  The best college course I ever had was with an MIT visiting econ professor--but she was a former Western Electric assembly line employee, not a nerd with a pocket protector.  Cue Van Halen's "Hot For Teacher..."-- she could plot a curve with me ANYTIME... (sigh) School Daze...

Wed, 12/12/2012 - 10:19 | 3055498 EscapeKey
EscapeKey's picture

“[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”

Carroll Quigley; "Tragedy and Hope"

Wed, 12/12/2012 - 10:44 | 3055619 bunnyswanson
bunnyswanson's picture

It is amazing, isn't it?  The havoc and chaos this group of men have bestowed upon the planet in order to control the money supply.  And they do not stop.  Their success is our failure.  These sheltered little bankering minds, seemingly spared from the visual assaults of the struggle now called a life of the common man, have miscalculated and will be imprisoned, confiscated wealth returned and their "financial system" left in ruins before in under a decade.  

 

Yes fed up middle class human beings with a new lease on life will make this unfold.  The 5 stages of loss

denial, bargaining, anger, despair and acceptance - and then, which Americans are EXPERTS AT, solutions.

http://www.alexaobrien.com/secondsight/ndaa_hedges_et/ndaa_letter_to_my_friends_and_family.html

In The Meantime, Mutherfuckers, help this young journalist in link above who exuberantly and with good intentions began a crusade and is now one of the first victims of aforementioned orgasmless dicks, held in detention without charge for trying to stop what started all this - big money interests in politics.

 

 

Wed, 12/12/2012 - 12:35 | 3056106 NotApplicable
NotApplicable's picture

You could distribute that quote along with all the things Bill Clinton's said about him being such a major influence on him to every person in the country, yet it still wouldn't stop Hillary's ascension next selection.

Wed, 12/12/2012 - 10:20 | 3055500 zilverreiger
zilverreiger's picture

The Jews Dunnit

Wed, 12/12/2012 - 10:30 | 3055541 helping_friendl...
helping_friendly_book's picture

exactly

+1000

Wed, 12/12/2012 - 10:20 | 3055502 Jayda1850
Jayda1850's picture

A nice list of those who should be hanged in the street first for all the suffering they continue to cause through their arrogance that complex systems can be centrally planned and that economics is science with exact equations and formulas. Sadly, it is this belief, that economics follows set and certain rules and is therefore predictable, will be the downfall of us all. Fuck the whole lot of them.

Wed, 12/12/2012 - 10:40 | 3055602 Dr. Engali
Dr. Engali's picture

I respectfully disagree. They will never be forced to pay for the consequences of their actions. The people of the world are being effectivelly divided agaist each other so we don't focus on them. If there is any doubt...I give you Lancing Michigan.

Wed, 12/12/2012 - 12:41 | 3056133 NotApplicable
NotApplicable's picture

Yet not once has their been a single terrorist attack directed at the true rulers of the world. Funny how all of these terrorists can't manage to locate real targets of value, but rather, always go after targets that only serve to create public outrage against them and their cause.

It's almost as if someone were engaging in false-flags...

 

Wed, 12/12/2012 - 10:21 | 3055504 chinaboy
chinaboy's picture

Can MIT put their "money printing 101" course online so we can understand how this monkey business does not hurt the real economy?

Wed, 12/12/2012 - 10:22 | 3055506 SheepDog-One
SheepDog-One's picture

Really sick world. 

Oh wait, I almost forgot...FUCK U BERNANK!

Wed, 12/12/2012 - 10:22 | 3055507 azengrcat
azengrcat's picture

If the Bernank was so smart why did he have to refinance his house? I guess he didn't factor the housing bubble he created and the subsequent QE++ infinite loop. I ain't listening to some wizard that was upside down on his house and is trying to re inflate his Princeton Pension LOL.

Wed, 12/12/2012 - 10:24 | 3055515 fonzannoon
fonzannoon's picture

He refi's his house so that he can relate to the common man. It's all part of the pretty portrait. NOW STOP QUESTIONING IT.

Wed, 12/12/2012 - 13:37 | 3056359 Diogenes
Diogenes's picture

He refi'd his house @ 2 1/2% (0% after inflation plus he gets a tax deduction) to buy more gold.

Wed, 12/12/2012 - 10:23 | 3055509 semperfi
semperfi's picture

Marxist Institute of Tyranny ?

Wed, 12/12/2012 - 10:40 | 3055596 GetZeeGold
GetZeeGold's picture

 

 

Oh.....that MIT.

Wed, 12/12/2012 - 10:43 | 3055511 scatterbrains
scatterbrains's picture

This guy Stanley Fischer, he must be hell bent on stopping Iran from using gold as money I would imagine.

Wed, 12/12/2012 - 10:24 | 3055514 thesecondslowes...
thesecondslowestantelope's picture

Where did the guys from the Canadian Central bank go?

Wed, 12/12/2012 - 10:25 | 3055522 marginview
marginview's picture

Bernanke's model wasn't working too well when it told him that the housing downing wouldn't spread to the broader economy. Let's hope the adjusments he made to the forumla justify his confidence.

Wed, 12/12/2012 - 10:27 | 3055525 mess nonster
mess nonster's picture

The money and the juice go together.

 

Wed, 12/12/2012 - 10:28 | 3055528 Village Smithy
Village Smithy's picture

The decline of every great enterprise in the last century has begun with meetings like these. A bunch of pompous old white guys sitting around smoking expensive cigars and patting themselves on the back congratulating themselves for being "so fucking awesome".

Wed, 12/12/2012 - 19:12 | 3057679 hooligan2009
hooligan2009's picture

i almost thought you were talking about bloggers...but then i put my cigar out :)

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