The Greatest Central Banker of Our Time
"Did someone predict the crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say." - Nassim Taleb, author of The Black Swan, 2010
In life, justly earned rewards are often never delivered and proof of it is a man named Riad Salameh, the greatest central banker of our time. If you are scratching your head because the name doesn't ring a bell, no need to fret. You're not alone.
Dr. Salameh has been Lebanon's central bank governor since 1993, steering her through multiple foreign invasions, civil war, political assassinations, and the greatest credit bubble the world has ever seen. Unique among all central bankers, he pulled his banking system from in front of the onrushing train of the Great Moderation so it went roaring by Lebanon's banking system and broadsided America's, sitting idle, dumb, and fat on the tracks just up ahead.
With admirable foresight, Dr. Salameh paid attention to the Lebanese banks' off-balance sheet items, forbade (in 2004) sub-prime investments, and required a minimum 30% cash reserve at each institution. The result? (In Dr. Salameh's own words), "Lebanon will not feel the effects of the financial crisis, because we took the necessary measures preemptively" and as they say in Texas, it ain't braggin' if it's true.
In the time since the burst of our bubble, Lebanon's banking system has been doing super, thanks for asking! The first seven months of 2010 saw "unprecedented growth in lending activity" from a Lebanese system made up of "highly liquid deposit rich banks with low leverage". Yet, as of this moment Dr. Salameh has garnered scant few American fans for his unmatched success. While Euromoney magazine has been granting him awards since 1996 and The Banker Magazine voted him 2009's Best Middle Eastern Central Bank Governor, all YouTube yields is 6 results and a search of Google but 17 news items about him. "Everything's fine" makes for boring press.
Boring over in our corner of the globe it was not. On full display was the riotous bacchanalia of a classic speculative mania, everyone snorting derivatives, pounding shots of sub-prime, and shooting craps ‘til dawn. It was great fun. Who can forget Dr. Alan Greenspan? A swell bartender (he always poured with a heavy hand), he had just the funniest joke. After mixing your drink he'd look at you all solemn-like, wag his finger, and "Now, now", he'd say, "Don't you go gettin' all irrationally exuberant." That one never failed to get a big laugh.
Standing in the wings behind him was Ben Bernanke (he was still bar back at the time) usually nose-deep in a math book. He was (is?) the national expert on the Great Depression and would make sure such a calamity would never be allowed to occur again. He was our mild-mannered security blanket, always available to come off the bench should another crisis erupt. It did.
Whether or not one agrees with the wisdom of having a central bank in the first place, you'd figure its proponents (which include virtually everyone but me and a few others in Auburn, Alabama) would wish to benchmark every governor off of the one who has actually shown a talent for the job. The fact that Dr. Salameh is almost unknown to us is partly due to geography but mostly due to a strange fad currently sweeping America - we celebrate failure.
America is a land of pure democracy, a paradise where "Everybody's Got A Right..." and now everybody's got a right to be right, even when time has proven them wrong. We've embraced a strange culture where we give the championship banner to the team that came in last. Abject incompetence and utter failure are no barriers to wealth and respect - quite the opposite for the politically protected, in fact. I see far too many of them popping up in the financial news with mind-boggling frequency.
People today will pay good money to sit in conference rooms and listen raptly to the very people who never even saw the iceberg to begin with and, once it hit our ship, pushed aside all the women and children and piled me-first into the few available lifeboats.
So while our financial press fawns over one Wall Street welfare Queen after another and bats eyelids at a litany of central bankers that never saw danger, the one central banker who foresaw the coming train wreck and pulled his country's banking system out of the way is quietly ignored. (Dr. Salameh has not been in attendance at any of the last three Jackson Hole gab-a-thons.) He is that most rare of creature - a central banker who actually took away the punchbowl, turned out the lights, and told everyone to go home while they could still drive.
America's political and financial elite, if I may be redundant, is running around excusing their "unique" post-crash monetary experiments due to the strangely sudden economic emergency, the very one that Dr. Salameh foresaw. Maybe Dr. Salameh put down the math books for a moment, picked up a history book, and read of Great Britain's infamous South Seas Bubble. Or maybe he read Cato's Letters from 1720 wherein they expressed relief at the end of that very same fiasco because "If our money be gone, thank God, our eyes are left".
That's the best we can hope to get out of this disaster; the lessons it can teach us. But all progress comes about when we honor and imitate our more successful fellows, not the failures. There are important lessons to be learned from this harsh experience, but we will never even begin to figure them out until we first open our eyes and grant Dr. Riad Salameh his due.