—Why Trump-nominated Kevin Warsh is the wrong fat cat for Fed chair. Stop reward for failure!

Opinion by Mathew Carr

There is a striking picture about banking’s share of global profits since 1980, especially in America.

Financial services (including banks) in the U.S.:
∙ Account for roughly 25-30% of all corporate profits despite representing only 7-8% of GDP
∙ This ratio has been particularly pronounced since the 2000s

The historical trend:
∙ Financial sector profits have grown significantly as a share of total corporate profits over recent decades
∙ In the early 1980s, financial services represented a much smaller share of corporate profits
∙ The expansion accelerated through the 1990s and 2000s

Global context:
∙ Banking is the single largest industry category among the world’s 2,000 largest corporations (15% of the total)

It’s overtaken energy.

∙ Corporate bank profits overall grew from 7.6% of global GDP in 1980 to nearly 10% by 2013
∙ Banks generated more distributable capital (free cash flow) in 2021-24 than any other industry
– QE / the pandemic made it worse since

Extractive Behavior

Why this matters:

The fact that financial services capture such a disproportionate share of profits (25-30% of corporate profits while being 7-8% of the economy) suggests limited real competition and potentially extractive behavior—charging fees and earning returns that exceed what would occur in a truly competitive market.

Warsh did not call for stronger bank regulation during 2006-2008, even though Kevin Warsh’s official title from 2006-2008 was Member of the Federal Reserve Board of Governors (also called “Fed Governor”)

He served in this role from February 2006 until March 2011, appointed by President George W. Bush.

Here’s what the evidence shows:
What Warsh actually warned about:
∙ According to the Wall Street Journal, he told his Fed colleagues “well before the panic” that “the financial system was vastly undercapitalized”

So he knew there was a problem and did nothing?

∙ In March 2007, he spoke about market liquidity risks, noting that while liquidity provides benefits, historical episodes showed warning signs

But he didn’t push for stronger regulation:
∙

Despite recognizing undercapitalization, there’s no record of him advocating for stricter capital requirements or regulatory intervention to address it

∙ His focus in 2006 was on improving the Fed’s understanding of market data and metrics, not on regulatory reform

∙ When the crisis hit, he worked primarily on crisis management and bailouts rather than pushing for regulatory changes

The critique:
Economist Brad DeLong noted that Warsh “conspicuously failed to see through the veil of time and ignorance” and was “blindsided by the actual risks and shocks” – and more importantly, that he “has not done any kind of Bayesian updating of his own models and beliefs as a result.”

In other words, he learned the wrong lessons.
The “Bayesian updating” reference is especially pointed – it’s suggesting that Warsh didn’t learn from being wrong, which for an economist (especially one being considered for Fed chair) is a serious intellectual failing.

See notes

After Bear Stearns (March 2008):
Warsh himself later reflected that there was “a window after Bear Stearns, between March and late summer, where there was an opportunity to have been more refined in our thinking” about whether it was “more indicative than an outlier” – but they didn’t take that opportunity.

So he had some awareness of systemic risks but didn’t translate that into calls for preventive regulation. This makes his current push for deregulation particularly concerning.

Michael Bloomberg, conflicted newsman to the bankers, should also have his 2008-2020 behaviour and empire carefully investigated …and probably dismantled to protect society against pro-bank rigging and conflicts of interests related to his philanthropy / influence peddling …and aversion to US carbon pricing.*

Regulators should question Warsh’s intentions at the Fed and find someone else instead who will enforce rules on banks for the benefit of ALL the people.

This concentration of profits in finance, combined with the lack of accountability after the 2008 financial crisis ….and now the prospect of further deregulation under Warsh, reinforces the concern about the system being rigged in favor of banks …rather than the broader economy …and society, environment and nature, even more widely.

Warsh at the Fed locks in bad banks and bank injustices until 2030 ….instead of forcing the world consistently toward UN sustainable development goals that are meant to be met by the end of the decade.

(Added Bloomberg context/disclosure)

*I added Mr Bloomberg here to be authentic and provide context and disclose my potential conflicts of interest: I was fired by him/his incompetent and vindictive minions in 2020 after making him huge sums of money for 20 years and also making his business look good. His minions then repeatedly lied in court in five years of litigation in a bid to shut down my whistleblowing.

Claude: