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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 - 12:44 | 3056153 Madcow
Wed, 12/12/2012 - 15:24 | 3056852 dscott8186
dscott8186's picture

Clever and just legal enough to pull off since the 14th Amendment idea would get him impeached and removed from office.

I'm nervously laughing, that hits a little too close to reality...

Wed, 12/12/2012 - 12:47 | 3056162 Justpassinthru
Justpassinthru's picture

As an MIT alum, this article concerns me greatly.  While I completely disagree with Bernanke and his view of the role the Central Bank should play... I don't expect he will be calling me anytime soon to get my feedback.  Oh well!

One more thing... Unfortunatly, we (MIT) also count nutjob Krugman as a PhD alum from my beloved institution.  Sigh!!

Wed, 12/12/2012 - 12:51 | 3056174 q99x2
q99x2's picture

I wouldn't trust a one of them around my sheep.

Wed, 12/12/2012 - 12:54 | 3056185 JamesBond
JamesBond's picture

i graduate therefore I am

 

jb

Wed, 12/12/2012 - 13:00 | 3056207 Miramanee
Miramanee's picture

There are many scary things herein: in no partciular order...

 

1. That central bankers are involved in the greatest experiment in history, and when it all goes wrong, things are gonna get ugly.

2. That this site is full of anti-semites who equate Judaism w/avarice.

3. That there is NO solution to the global economic crisis....other than WWIII.

4. That blogs like this foment extremism and hatred

5. That I waste my time commenting on this crap.

Wed, 12/12/2012 - 13:09 | 3056241 Inthemix96
Inthemix96's picture

Miramanee.

Could you provide proof for points 1-5 please, as some of folk here find ZH rather informative and helpful in this world full of shit.

Otherwise, you are more than free to fuck off and post somewhere where your talents are better suited.

Wed, 12/12/2012 - 13:12 | 3056254 Miramanee
Miramanee's picture

@Inthemix96

 

Another incoherent rage attack by another incoherent ZH poster. Thanks for making my point for me. :)

Wed, 12/12/2012 - 13:13 | 3056264 Inthemix96
Inthemix96's picture

No problem mate, that what I am here for.

;-)

Wed, 12/12/2012 - 22:44 | 3058201 centerline
centerline's picture

Huh?  You never supported any of your points.

Wed, 12/12/2012 - 13:25 | 3056305 AnAnonymous
AnAnonymous's picture

Could you provide proof for points 1-5 please, as some of folk here find ZH rather informative and helpful in this world full of shit.
________________

This is an 'american' world and a US world order.

The site is rather informative on 'americans' and 'americanism'.

Wed, 12/12/2012 - 13:18 | 3056282 dscott8186
dscott8186's picture

Oh what's the problem?  Are the facts detracting from the wonderful narrative of liberalism that the experts should run the world?

Fact:  the bankers do meet regularly

Fact:  most if not all of them have been associated with MIT 

How has the world finances been working given that the egg heads are in charge? What's the track record of the "experts" running things?  

Typical lib, you don't like people connecting the dots unfavorably when it's your paradigm that continues to screw up.  So what do you resort to when you can't challenge the facts?  Name calling... Anti-Semite, hatred, extremism (those are your words)

Wed, 12/12/2012 - 13:23 | 3056301 Miramanee
Miramanee's picture

Wait....Don't my points 1 and 3 AGREE w/your analyses? Don't I stipulate that this central-banking experiment is indeed just that, and that it's going to inevitably fall apart? As for point #3, economic crises always end in war...either war for resources or wars for restoration of national pride or war to rebuild broken economies. Always. As for the anti-semite comment...C'MON!!! Read any thread of posts in which The Ben Bernank or Tim Geithner are involved, and you'll find someone making either implicit or explicit comments about their being Jewish, Sionist (oh ya...Zionist), etc.

Wed, 12/12/2012 - 13:27 | 3056308 AnAnonymous
AnAnonymous's picture

'Americans' are not already committed to wars over resources?

Another piece of news.

Wed, 12/12/2012 - 13:33 | 3056316 Miramanee
Miramanee's picture

WHAT??!?!?! America is not committed to wars over resources??? You're joking, right? OOPS....missed the quesiton mark in my moment of astonishment. In fact, I would bet that the U.S. is engaged in covert wars over resources about which we have no information.....yet.

Wed, 12/12/2012 - 13:58 | 3056483 Colonial Intent
Colonial Intent's picture

He's a troll, I can never tag his server any further than china.

Wed, 12/12/2012 - 13:40 | 3056380 dscott8186
dscott8186's picture

And yet you continue to waste your time on this crap (point #5)?  Why?

A distraction is needed, quick, quick, we don't want them to connect the dots... Anti-Semite, anti-semite, that should keep them busy by defending themselves against faux charges of implied racism.

Wed, 12/12/2012 - 15:25 | 3056857 dexter_morgan
dexter_morgan's picture

Trolls spouting unfounded shit and 'points' are usually best ignored. The 'points' they have are just regurgitation of some talking points from their favorite liberal organization and or union.

Wed, 12/12/2012 - 17:47 | 3057419 Cathartes Aura
Cathartes Aura's picture

all trolls = liberals?

easy boxy.

Wed, 12/12/2012 - 22:48 | 3058209 centerline
centerline's picture

Anon is a one trick pony.  Not even a troll.  Same message every time.  Just a waste of 0's and 1's on the internet.  Probably a waste of oxygen on the other end.

Wed, 12/12/2012 - 22:55 | 3058230 akak
akak's picture

Anon is actually a no-trick pony, as his "message" is nothing but kneejerk anti-American bigotry and blanket hatred, endlessly repeated.

Behold the sound of one hand beating a dead horse.

Wed, 12/12/2012 - 13:03 | 3056212 q99x2
q99x2's picture

Seems like the Bernanke put is pissing down the drain today with the S&P +1 measly point. MIT should be able to do better than that no?

Wed, 12/12/2012 - 13:04 | 3056217 venturen
venturen's picture

Did Krugman go to MIT?

Wed, 12/12/2012 - 15:33 | 3056891 mark mchugh
mark mchugh's picture

Absolutely!!!

As did former Greek PM Lucas Papademos

Israeli PM Benjamin Netanyahu

Larry "the hut" Summers

Christina Romer

Just about everybody from Long Term Capital Management.

And Carly Fiorina, who smashed through the glass ceiling to prove a woman can vaporize other people's wealth as well as any man.

and the list goes on...

Wed, 12/12/2012 - 23:57 | 3058355 piliage
piliage's picture

Carly Fiorina....ah yes. without question one of the most arrogant, useless assholes on the face of the earth I've ever had the displeasure to meet. It was all I could do not to pull out her tongue and use it as a sweatband.

She still has that 'I'm a genius" attitude even though there is copious evidence to the contrary, and hearing her speak is what I imagine being forced at a politburo conference to listen to Stalin was like.  She combines gross incompetence and rampant ego with such ease and fluidity that leaves one in mouth-opened shock.

Wed, 12/12/2012 - 13:22 | 3056300 AnAnonymous
AnAnonymous's picture

Ah, the finest of the finest, as brought to you by 'americanism'

All poster childs for the "Made in America" that is so often vocally demanded.

After seeing the great achievements by this fantastic 'american' band, how could you not want more of the same?

'Americanism' for the win.

Wed, 12/12/2012 - 14:40 | 3056665 dadichris
dadichris's picture

why does MIT hate freedom?

Wed, 12/12/2012 - 15:38 | 3056905 earleflorida
earleflorida's picture

the five poster boys are all ashkenazi jews-- what more can i say...

Thu, 12/13/2012 - 08:48 | 3058769 Miramanee
Miramanee's picture

Good ole Earle....another moronic anti-semite joins that ranks of the utterly inane and loony ZH crowd.

Wed, 12/12/2012 - 15:42 | 3056932 mark mchugh
mark mchugh's picture

If I were smarter, I'd figure out how to post pics in the comments....

http://acrossthestreetnet.files.wordpress.com/2012/08/mit-experiments.png

 

Wed, 12/12/2012 - 17:56 | 3057455 Cathartes Aura
Cathartes Aura's picture

don't think "smarts" is what is needed, as others past contributions have shown us. . .

upvote for that link tho' - "go beavers" heh!

Wed, 12/12/2012 - 18:51 | 3057631 halthouse1
halthouse1's picture

 

Send in the clowns, don't bother they're here!

Ben Bernanke is a snake oil salesman and the media his rubes. Check out my take (plus animated video) at The Political Commentator here: http://bit.ly/Sd8fYJ

Wed, 12/12/2012 - 18:54 | 3057643 IridiumRebel
IridiumRebel's picture

Making

It

Tank!

Wed, 12/12/2012 - 19:14 | 3057684 chump666
chump666's picture

They are dangerous and clueless, which is a very bad combo.  Responsible for the Arab spring uprising (inflation was a primer), the slow and painful death of Greece, Spain, Italy and Portugal.  America's doom. And our coming energy wars: Iran, South China Sea.

They are not engineers, engineers respect the power of nature, try and work within nature, create structures to benefit man.  These guys are the most f*cked up nut-cases you could even want thinking that they are controlling the markets.  Yes they control money supply, but not the invertible.  And since they created a very sh*tty smokescreen for their dumb ass, ball-less politicians that follow these loons.  The invertible is a freight train of pain.

As for the current markets, I hope they don't think they should get credit for suppressing volatility.  It is the HFTs, so my faith in these guys (above) and maniacal nerd programmers is about the same...

 

Wed, 12/12/2012 - 19:18 | 3057693 Tenshin Headache
Tenshin Headache's picture

+1 for Hilsenrath, and I never thought I'd feel that way about him. I hope he continues with this more enlightened focus.

Wed, 12/12/2012 - 19:23 | 3057698 hooligan2009
hooligan2009's picture

economics is an art not a science

 

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

 

dont know what happened to this guy

 

woops...i guess i do

 

http://felixzulauf.blogspot.co.uk/2012/08/felix-zulauf-interview-part-1-...

 

Wed, 12/12/2012 - 20:47 | 3057913 NidStyles
NidStyles's picture

I don't understand how that is the same guy.

Wed, 12/12/2012 - 19:21 | 3057704 Slightly Insane
Slightly Insane's picture

Pardon me mesiuer,

I vill be your vaiter dis evening .....

 

No, dat is not an elektronik bug at vor table, dat is just sum child toy - must hav bin left behinde.

Wed, 12/12/2012 - 19:28 | 3057714 cosmyccowboy
cosmyccowboy's picture

there are those that say they are jews but are not... they are of the synagogue of satan!!!

 

Wed, 12/12/2012 - 22:05 | 3058113 earleflorida
earleflorida's picture

that's the problem today! one bad apple spoils the barrel?

zionist are in every race that wish to destroy unity-- it's just a shame that the jewish faith has been tainted with such an ugly surname. [zionist are radical terrorist, period!]

fact: king david was a mass murderer, a bad-ass zionist that slaughter tens of thousands, and perhaps, hundreds of thousands[?], but you'll never find out looking up at the 'Star of David'... 

Wed, 12/12/2012 - 19:36 | 3057735 Papasmurf
Papasmurf's picture

"Keynesian economist"

 

Seems like a contradiction of terms.

Wed, 12/12/2012 - 19:39 | 3057750 derryb
derryb's picture

MIT - World leader in social engineering!

Wed, 12/12/2012 - 20:33 | 3057881 Joebloinvestor
Joebloinvestor's picture

So who is it?

These guys, the Masons or GS that are to blame?

Wed, 12/12/2012 - 21:33 | 3058033 matsoR
matsoR's picture

Welcome to the new boss same as the old one: the men who crashed the world.

Wed, 12/12/2012 - 21:38 | 3058047 Yes_Questions
Yes_Questions's picture

 

 

Happy Hunger Games!

 

Also, can we please use some other word than "buy" when it comes to the FED's operations under QE4EVA?  Even when using credit, one may buy something and "money" will move from one column to another.  Sure the first column in a credit financed transaction may have had potential money, (which then came into existence at the moment it was then moved to the seller's column), but the money placed in that first column will have an agreement to it, it comes into existence on the premise of repayment.

 

When the FED does it, money just suddenly appears in one column.  The second one.  As in the "seller's".  There is no real premise of repayment (by the FED) to some other credit issing party.  How are they BUYING ANYTHING?

 

No?

 

I'm getting a headache and its got Modern Money Mechanics written all over it!

 

Wed, 12/12/2012 - 21:44 | 3058066 chump666
chump666's picture

Bernanke, Asia just fired a warning shot at your open a-hole.  USD bids are in:

*The HKMA sold a total of HKD 11.66 bln on Wednesday, one of the heaviest intervention days yet

Asian intervention just took out gold.

End year nastiness.  Can it be?

Wed, 12/12/2012 - 22:19 | 3058102 Zer0head
Zer0head's picture

just look at their Alumni porthole

but before we visit there how about a quick stop at

http://web.mit.edu/krugman/www/

before we go the

aptly named

MIT Infinite Connection

http://alum.mit.edu/privacy

or

Join the Chain of Good Feeling. MIT wouldn't be what it is today without the generosity of earlier generations.

http://alum.mit.edu/students/

or have a pre-election visit with Christina

http://alum.mit.edu/.../former-obama-advisor-to-discuss-whats-at-stake-i...

Wed, 12/12/2012 - 22:51 | 3058220 Thoth
Thoth's picture

Geez, relax guys, they are doing everything they can to help everyday people like us!!

Wed, 12/12/2012 - 23:07 | 3058229 mendigo
mendigo's picture

really smart people repeating the same mistake again and again what would jmk do? to do something worthwhile one needs to be smart, receptive, creative and with good intentions mit manufactures rainmen (ok gross generalization) good luck with that still they are not doing too bad at propping up the status quo - someone needs to advise them that kmart sucks

Wed, 12/12/2012 - 23:49 | 3058343 H E D G E H O G
H E D G E H O G's picture

WASHINGTON (MarketWatch) -- The U.S. government ran a budget deficit of $172 billion in November, the Treasury Department said Wednesday, bringing the total shortfall for the first two months of fiscal 2013 to $292 billion. The government spent $334 billion in November, and took in $162 billion. The fiscal year-to-date deficit is up 24% from the first two months of fiscal 2012. The government's fiscal year runs from October to September. Off the subject, but does MIT admit anyone who is NOT Jewish? Am I missing something here? just fucking askin......................

Wed, 12/12/2012 - 23:55 | 3058351 Victorio
Victorio's picture

What's up with gold getting bitchslapped tonight? 

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