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“Asking for money is hard.” Those are the words of Will Guidara in his excellent new book, Unreasonable Hospitality.

Guidara was referencing the funds he and chef Daniel Humm were trying to raise in 2011 in order to purchase Eleven Madison Park (EMP) from owner Danny Meyer. In 2006 Guidara and Humm had been handed the reins of the very well-regarded New York Times Three Star, only for them to quickly transform it into one of the world’s greatest restaurants. Please think about this.  

As EMP’s global status hopefully attests, Guidara and Humm were serving not just Manhattan’s elite on a nightly basis, but the world’s. Better yet, Guidara and Humm were thriving in the proverbial center of the financial universe.

Despite this proximity to some of the best of the financial world’s best, finding the funds necessary to buy EMP proved rather difficult. Though Guidara and Humm ultimately succeeded, it was no easy feat. See this column’s opening quote.

The difficulties encountered by the eventual owners of Eleven Madison Park rate consideration as Fed watchers think about the central bank’s efforts via the fed funds rate to increase the cost of overnight borrowing for banks. A fed funds rate target that used to be closer to zero is now in the 4.50-4.75% range, but do the numbers really matter all that much?

Figure that Guidara and Humm purchased EMP in 2011, at a time when the fed funds rate was closer to zero. According to the financial cognoscenti, the latter signaled “easy money.” Ok, but “easy money” for whom?

It once again wasn’t easy for Guidara and Humm despite the extraordinary prominence of the business they aimed to buy, not to mention their location. If raising money was “very hard” for them, what must it have been like in 2011 for the myriad unknowns in search of capital for businesses that lacked even a small fraction of EMP’s notoriety?

The simple truth is that money in the real world is never “easy,” and it isn’t because the gains that can be had from money put to work prudently are impressive. The proverbial “millionaire next door” didn’t get that way by swinging for the fences on risky investments as much as he achieved impressive wealth through savings followed by careful investment in “singles.”  

It’s all a reminder that the Fed can target costless or reasonably inexpensive borrowing through its fed funds rate targeting, but the markets will always and everywhere have their say. And in the marketplace for capital, it’s rarely “easy” to access.

All of this is of particular importance when we move beyond ultimately successful, and relatively high-profile capital raises of the kind conducted by Guidara and Humm. They were once again known quantities to many in finance, and better yet, they were running a business they wanted to own that was very much a known quantity. What about the unknowns, or even more challenging, the subprime from a credit standpoint unknowns?

In this case, we can look back to 2021 when the Illinois legislature passed into law the Predatory Loan Prevention Act. The latter put a ceiling on the rate that non-bank and non-credit union financial entities could charge subprime borrowers for cash. The ceiling was 36%, which first of all speaks to how superfluous the law was in its exclusion of non-bank and non-credit union lenders. That is so because for both banks and credit unions, their loans must perform. Put another way, banks and credit unions don’t pursue risky loans that, as the 36% ceiling on them attests, are the embodiment of risky.

All of which speaks yet again to just how empty the descriptor of “easy money” is with regard to nominally low fed funds rates. Once again, “easy” for whom? Not only was the Fed’s “zero bound” wholly irrelevant to individuals like Guidara and Humm despite nightly access to those of means (or those with access to those of means), stop and think how completely irrelevant the Fed’s rate machinations are to those with the least.

Still, it’s worth wondering if by attempting to make credit “easy” that the Fed’s actions may be harmful to the 99%+ of borrowers who can’t come anywhere close to borrowing at 4.5%, let alone near zero. As researchers J. Brandon Bolen, Gregory Elliehausen, and Thomas Miller found in their extensive study of the Predatory Loan Prevention Act, the price ceiling imposed by the State of Illinois on lending rates logically resulted in less credit extended to the highest risk borrowers. Bolen et al found empirical evidence to back what’s expected to happen in theory when lower costs are decreed, as opposed to arrived at via market forces.

Illinois reminds us that price controls clearly don’t work on the state level, or better yet they work in ways contrary to their stated objective. Eager to protect the least well-to-do from so-called “predatory lenders,” the legislation reduced borrower access to above-ground lenders, thus pushing those with the least back into the black market where the “predatory” are most likely to be found.

What of the Fed? Here it should be said that price controls are price controls. Assuming the Fed was actually able to facilitate costless or near-costless lending prior to the central bank’s more recent rate hikes, it should be said that such an outcome couldn’t help the vast majority for whom costless borrowing is a non-starter. In other words, it’s not unreasonable to speculate that allegedly “easy money” care of the Fed is a signal of tighter money for well over 99% of us.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

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