Honig worried about what would happen if the Fed pushed all the money out of safe investments and into riskier ones.
If money were to move further outward on the yield curve, it could lead to the second major problem Honig warned about in 2010.
It's an asset bubble.
The housing market that collapsed in 2008 was an asset bubble.
The dot-com stock crash in 2000 was also an asset bubble.
When a bubble bursts, the public tends to blame those at the scene of the disaster, and those people are usually the greedy folks on Wall Street.
People like brokers who constantly inflate prices in the stock market for short-term profits, or dishonest mortgage brokers who fueled the housing bubble.
But during these two asset bubbles and their subsequent collapses, Honig was on the FOMC and saw firsthand the central role the Fed played in creating those bubbles.

---From "Chapter 1: Going Below Zero"

In the 1970s, the Federal Reserve effectively encouraged banks to make increasingly risky loans, while the FOMC kept interest rates extremely low.
This was partly due to two recessions, in 1970 and 1975.
The Fed has kept interest rates low, even as the negative consequences of printing too much money become clearer each year, as it seeks to create jobs, stimulate investment, and boost overall economic growth.
The most obvious side effect of this policy was the rise in consumer prices for food, fuel, electronics, and other goods.
In 1973, the consumer price inflation rate was 3.6%, meaning that the things people buy on a daily basis became 3.6% more expensive in one year.
In 1979, the inflation rate reached a whopping 10.7%.
Anyone could not help but feel this level of price increase.
It was evident in grocery stores, gas stations, and even in corporate payrolls, where workers had to pay higher wages to make ends meet.

---From "Chapter 2: Important Numbers"

Paul Volcker's career as Federal Reserve Chairman did not end on a happy note.
He beat inflation and then went back to being a savage. At FOMC meetings, members voted against him more than any other chairman in modern Fed history.
When his second term ended in 1987, he declined renomination for a third term.
Volcker's merits were recognized much later, when economic historians recognized that his efforts to end inflation were uniquely effective, a decision made by a leader running an independent agency.
But he never returned to the center stage of American power again.
---From "Chapter 3 Great Inflation(s)"

Greenspan's use of the Fed language had a long and profound impact.
This accelerated a long process of removing monetary policy from American public discourse at a time when it was becoming increasingly important to the economy.
When the average citizen heard Greenspan's remarks, it was natural to think that whatever the Fed was doing was something so complex and incomprehensible that it was difficult for the average person to even discuss it, let alone criticize it.
Greenspan's remarks reinforced the image of the Fed as a collection of genius-level decision-makers.
They are said to be people who understand and deal with extremely complex problems for the people of Earth from the celestial realm of Olympus.

---From "Chapter 4: Fed Language"

Honig knew that his vote would change nothing.
Even before the meeting began, the FOMC had practically decided on quantitative easing.
He voted against the motion partly because he felt it was his duty, but there was another reason as well.
He was sending a message to the American public.
His vote was a signal that there is dissent within the Fed about what it should do.
That there was internal debate over this issue, and that at least one person thought the risks were too great to justify quantitative easing.

---From "Chapter 6: Currency Bomb"

Warren Buffett called Brady directly to explain the Salomon incident, and the Treasury Department soon reversed its decision and retained Salomon's primary dealer status.
Bell attributed this success and Salomon's rescue to Jay Powell.
“I know Jay was instrumental in getting Treasury Secretary Brady the information he needed to make his decision.” This decision gave Buffett the time he needed to do the cleanup work at Salomon.

---From "Chapter 8: The Problem Solver"

Years later, looking back, it's easy to point the finger at Wall Street traders for piling up towers of risky corporate debt.
But they were simply doing what the Fed incentivized them to do.
None of this should have come as a surprise to Federal Reserve decision-makers. In 2013, when the FOMC was conducting its largest quantitative easing program, Dallas Fed President Richard Fisher explicitly noted that the policy would primarily benefit private equity funds.
Places like the Carlyle Group where Jay Powell was.
Fisher questioned the idea that higher asset prices would lead to a "wealth effect" in the way Bernanke expected (i.e., owners of assets like stocks and homes would feel wealthier and thus consume more), leading to more jobs and higher wages for workers.
---From "Chapter 9 Risk-Generating Machines"

The core of the Honig rule was to separate the riskier parts of the banking industry from the more economically necessary parts, such as corporate lending, so that when a bank made a risky bet wrong, it could fail alone rather than drag the entire system down with it.
Allan Sloan, a financial columnist who writes for Fortune, The Washington Post, and others, wrote a widely read column after Honig's Senate hearing, suggesting that Honig's rule is exactly what Wall Street needs right now.
“It’s very simple and excellent.
“This [Honig’s Rule] is the idea of ​​wisely separating high-risk from low-risk behaviors.”
---From "Chapter 11 Honig's Rules"

When the Fed took action, everything was affected.
Market turbulence in 2018 manifested itself in numerous ways and in numerous places.
But one important factor drove them.
What appeared to be unrelated market panics were actually the result of smart investors responding rationally to the Fed's actions.
Investors listened to Powell and took him seriously. The era of ZIRP was gradually coming to an end.
Big money had to move in different directions to adapt to this new reality.

---From "Chapter 12 Completely Normal"

But this system was destroyed during the Bernanke era when the Fed decided to pursue quantitative easing and zero interest rates for years.
One of the side effects of quantitative easing was that the delicate ecosystem of open market operations became overrun with too much cash.
When the Fed entered the repo market directly, it bought and sold repo loans with precision and accuracy, much like a piano tuner carefully pulling and releasing a string to keep it just the right amount of tension.
Traders manipulated the money supply precisely to the Fed's desired level through very limited transactions, such as buying or selling $6 billion worth of repo loans.
A repo transaction injects cash, while a reverse repo transaction removes some cash.
The important thing here was that this cash was going into and out of the banks' reserve accounts.
---From "Chapter 13: Invisible Bailouts"

Within the Fed, there was growing sensitivity about the Fed's public image.
Jay Powell has tried to portray the Fed as a middle-class advocate.
In 2019, before the pandemic, Powell embarked on a "listening tour."
It was a place to listen to the concerns and thoughts of the working masses and discuss how the Fed could help them.
There was a strategic reason for this move.
Senior Fed officials were well aware that policies that helped only the very wealthy while others struggled were unpopular.
The Fed's bailouts in 2008 and 2009 helped fuel both the right-wing Tea Party movement and the left-wing Occupy Wall Street movement.
The backlash was particularly fierce from conservatives, who aggressively argued that the Fed should be audited, more heavily regulated, and even broken up.

---From "Chapter 15 Winners and Losers"

In many important ways, the financial crisis of 2008 never ended.
The financial crisis of 2008 was a 'long collapse' that caused dislocations in the economy for a long time.
Almost none of the problems that caused the financial crisis were resolved.
And this financial collapse was made all the more difficult to deal with by the long-term breakdown in the capacity of America's democratic institutions.
When the United States relied on the Federal Reserve to solve its economic problems, it was relying on a fundamentally flawed tool to solve its problems.
The Fed's money has widened the gap between winners and losers and created a foundation for greater instability.
The pandemic hit the financial system, which was thus left vulnerable, and the Fed responded by printing more money, amplifying the previous distortions.

---From "Chapter 16: The Long Collapse"