Dallas central banker Richard Fisher says US federal money should be used to create jobs rather than bail out Wall Street cowboys.
This article is from the March 2014 issue of INTHEBLACK.
Richard Fisher is the outspoken president and CEO of the Federal Reserve Bank of Dallas, part of the network that makes up the United States Federal Reserve.
He has run one of the few US banks to emerge from the sub-prime mortgage meltdown with its reputation intact, and he has been openly critical of the US administration’s failure to put in place a brave fiscal policy that would kickstart the US economy.
Fisher says the Fed is doing its part – monetary policy settings are providing “dirt-cheap” money – but wrangling between the Obama Administration and Congress is preventing anyone from taking advantage of that. He says the country needs strong leadership to give business the incentive to generate jobs and get the economy rolling, and a shift in US tax and social policy would be a good start.
A true man from the south, Fisher says he wants less Californification and more Texanisation; less social welfare and more work. The road to dignity, he says, is through work. And that is a hint to Fisher’s heritage.
He likes to say that in just one generation his family went from homeless to Harvard. He was in Australia recently to trace the footsteps of his father and grandfather, who were both locked up for wandering the streets homeless in Queensland in the early 1900s. He tells the story of how his father survived brutal reform schools and foster homes before settling in the US and, despite austere circumstances, built an environment in which Fisher was able to attend Harvard.
He discussed with former CPA Australia chief executive Alex Malley the “Aussie gumption” and respect he learned from his father, and how he once unexpectedly bumped into Nelson Mandela at the White House.
Malley: Richard, it would seem to me that my grandfather and your father would have got along very well. My grandfather was a cigar smoking, scotch drinker himself but sadly only got to 85. Tell me more about your dad.
Fisher: My dad was picked up begging on the streets of Maryborough [in Queensland] when he was five years and two months old, so that would have been 1909/1910, and he was sentenced to the Westbrook Reformatory for Boys [near Toowoomba] for seven years. It had a brutal history. Basically it was a prison. He was there for one month then they decided it was not appropriate for his age. He was then put in the Diamantina Orphanage and from there went to several foster homes which were quite brutal.
He got back to the streets and then ended up in South Africa. We think that he stowed away but he never gave us a straight story on that one. He was married, before he married my mother, to a woman from Australia who ended up in South Africa and then he was married to my mother for 62 years. He was married for a total of 73 years.
He was quite a character, very funny. He had a magnificent mathematical mind but he was never a financial success. We went through really hard times, particularly when I was 11 and 12 years old. We lost everything. My mother had to hock her engagement ring. My brother had to quit school and go to work to put food on the table. But in one generation, we went from homeless to Harvard.
Richard Fisher | Photo: Janyon
Malley: Your parents must be very proud of all you’ve achieved. Moving to the subject of leadership and the principle of ‘no pain no gain’, it must be frustrating to deal with Washington’s reluctance to make the tough decisions when you have such a rich history of real challenge. How do you deal with that?
Fisher: We are a rich country in the United States. You’re a rich country in Australia and the object is for leadership to provide incentive. We have an expanding dependent class in the United States; we have an awful lot of people who depend on public welfare. My father would have died rather than accept welfare. He had been a ward of the state as a child so I know, and I remember, he would not accept public money even when we had nothing.
Malley: There is an incredible irony in all of this isn’t there? Flying over Washington you can see in the landscape what the founders saw as the future. And then you look at today, this moment-by-moment management. What do we need to see in the US to get what you call the ‘electorally disagreeable decisions’ made, so that the country can move forward?
Fisher: You need strong leadership. I think Eisenhower is probably the greatest president in my lifetime. He was awfully smart but didn’t mind calling himself a dumb bunny in front of the press. He actually knew what was going on. He created the interstate highway system – it fit with what every Congressman and woman and senator wants, which is infrastructure in their district, so it was an ingenious idea. He knew what levers to pull and to push.
You can’t do it alone as president and I think it’s unfair to gang up on President Obama, for example. You have to have leadership in the House [of Representatives], too. And that leadership is to direct but not dictate.
Money is uber abundant and dirt cheap, but our government can’t take advantage of it right now because they are in hock up to their neck and they can’t make any decisions. And the fact they can’t make any decisions creates enormous uncertainty for the private sector to do what they like to do, which is to create jobs and expand. So it really sickens me to see a government hog tied when the monetary authority is doing everything it can.
The unpleasant way that I state this doesn’t sound central bankerish, but I want less of the Californification of the United States and more of the Texanisation of the United States. We do things well in Texas. We don’t have massive social welfare systems, people complain about that. Our attitude is: if you don’t like it, go somewhere else. You come here to work and work is the route to dignity. I learned that through my own family. And in Texas there is nothing wrong with going broke and starting all over again.
If you fail, no one holds it against you if you get back up.
Malley: Do you think in the US there is enough recognition of the opportunities like the ‘Asian Century’, or is there still a sense that America is the empire and that’s always going to be the way?
Fisher: I don’t think there is that sense of America always being the empire. Yes, we do have mass and we have size and we have egocentricity, but I think we are increasingly aware that we are in a globalised system – particularly whether you are a little business or a big business. We are bombarded daily with news items about China, for example. But what’s made globalisation is not just the [Berlin] Wall coming down, it’s the cyberisation of society.
There is a small architectural firm in Corpus Christi, Texas, and they have done more in terms of design of Abu Dhabi than anybody else. The only way they’ve done it is through the net. I know the woman who runs the firm. Huge contracts in Dubai that would not have been possible before the internet. It’s not just Korean rappers that we see on the internet.
Malley: How would you profile the confidence of the people of the US? Your term ‘bombarded’ is right. And it’s not just China. You’ve been bombarded around various wars. Has there been a shake in confidence of the American psyche?
"I want less of the Californification of the United States and more of the Texanisation of the United States. We do things well in Texas."
Fisher: I think it depends on where you are. We have no lack of confidence in Texas. If you live in Detroit or Chicago or a deteriorating city, you forget about the rest of the world and look around you and see that your relatives have lost their jobs or the police won’t answer an emergency call or the fire department won’t show up. That has to be depleting of confidence. Right now confidence is not great for the country as a whole, but there are pockets of great confidence.
Malley: From a policy level, you have a second-term president, and I can see in theory that in tough times to be elected for the second time you could really take leadership to a higher level. It seems an awful shame that gridlock may stop policies being created to alleviate that.
Fisher: I want to be very careful because I’m a central banker and not an elected official. But there’s only one route to dignity in my book and that is a job. I don’t care if you’re a Democrat or a Republican; I would be rebooting tax and spending policy at the federal level to do one thing: create jobs. I don’t care if they are union jobs, non-union jobs, it doesn’t matter. What counts is that people have work, and when you have work you have pride, when you have work people consume, when you consume you drive up the economy. So it is beyond my comprehension how you can’t have agreement between the two major parties in our country to focus on one thing: job creation.
We at the central bank have given the nation an enormous gift, the gift of abundant and dirt-cheap money to create jobs. To take advantage of low interest rates, to build infrastructure and do other things. [But]Republicans and Democrats and the executive branch cannot agree. This is an enormous opportunity when the world is looking to us for leadership. We no longer think in terms of “the European Union is going to be the next answer”. We know that it’s not the next answer. I don’t really think that we have to fear the Chinese, they have their own issues.
Malley: What is the lasting impact of the financial crisis on the banking sector in the US? What do you think they’ve learnt and how are they doing business differently?
Fisher: One thing that people have learnt is that risk management models put together by quant [quantitative] jocks are not substitutes for good judgement. Another lesson is that size and scope are important – you can be too big. You might say too big to fail is not an issue, but the fact is even a very brilliant man like Jamie Dimon [chairman and chief executive of JPMorgan] found out that the size and scope of JPMorgan is so vast that he didn’t know who the “London whale” was [London-based trader Bruno Iksil earned the moniker after contributing to JPMorgan losing US$6 billion through the big positions he took in a credit derivatives index].
Another thing we have learnt from the crisis is there are limits and there is a need to pay attention. There was no regulation of Lehman Brothers, Bear Stearns and Merrill Lynch, and so we are stepping this up at the central bank. We are doing stress tests, etcetera, but I take it a degree further. I think we ought to create policies that would induce these banks to shrink in size.
Commercial bankers have always been balance sheet oriented. Investment bankers and hedge fund managers were income statement driven. So when you’re balance sheet oriented you care about the long sustainability of your institution. If you are income statement oriented you’re interested in one thing: how much money can I make this year? Those two cultures do not mix. Now what I advocate is taking away the government protection for the latter and only providing it for the deposit-taking institution of a complex bank holding company. The rest should be totally at risk and it should be made extremely clear that they will never be rescued if they fail.
One of the problems is we have created this high altar of what is called systemically important financial institutions or SIFIs. The Dodd–Frank Wall Street Reform and Consumer Protection Act (to be fair to Senator Dodd and Congressman Frank, this was forged in a crisis) needs to be redone. We know that now. This is one area where you can get bipartisan support. It is a major project for me and I’m driven to make it work. Japan didn’t take care of its mega banks and, until recently, had been in a funk for two decades.
What we have right now is pretty heavy-handed by way of regulation. We are keeping our foot on the throat of these larger institutions: stress tests, liquidity ratios, capital ratios. I think this is good but I don’t think it’s ultimately the answer. The answer is to make them too small to save rather than too big to fail.
“My mother is from Norway and my maternal ancestors were whalers. There were two whaling families that lost their ships and money off the coast of Africa. So my grandfather, Sigrid Andersen, couldn’t get back to Norway and ended up in Jagersfontein [in the Orange Free State, South Africa]. I later found out that’s where Nelson Mandela would go to hide.
Mandela, Clinton and Fisher
I had an incredible opportunity when I was in the Clinton Administration. One day I was taking a shortcut through the White House from the US Trade Reps Office to the Treasury. You go by the Roosevelt Room and down through the kitchen and make your way out this little secret passage.
As I was traipsing past the Roosevelt Room, trying not to be noticed, President Clinton yelled out my name. When the president of the United States speaks to you, you look at him.
He said, “Richard, you told me many years ago your mother was from Jagersfontein in the Orange Free State”– imagine that memory, because he had been governor of Arkansas when he learned that.
There was another man standing next to him. But when the president speaks to you, you look straight at him, no matter who it is.
The other person was Nelson Mandela. Suddenly I heard this saintly, angelic, totally memorable voice saying: “Those are the people that saved me, I used to hide there with the Scandinavians. So was your mother Norwegian or Swedish or Dane?”
I said: “Well she was from Sandefjord in Norway, south of Oslo.”
He said: “Let’s sit down young man.” So I had the privilege of having an almost hour-long conversation alone with Nelson Mandela, much to the annoyance of the State Department people that were surrounding him. And Clinton being Bill Clinton, Mr Personality, just encouraged the whole thing. It was one of the great moments of my life.
This article is from the March 2014 issue of INTHEBLACK.