MARK CARNEY
Chair , Brookfield Asset Management
Congratulations , Tina , it is an honor to follow you on the stage . And it is a great honor for me to introduce Richard Clarida . You have his resume . It speaks to a career of remarkable academic achievement and noble public service . The best thing I can do is provide some context of how Rich has combined those two attributes to improve the welfare of the people of the United States and around the world .
I want to start with a lesson . I ’ ve learned a number of lessons over the years in finance , most of them from mistakes , many of them from Howard Marks and one from a colleague of John Whitehead ’ s , a partner named Bob Hearst at Goldman , who taught me a rule I found invaluable : “ In finance , if it doesn ’ t make sense , it doesn ’ t make sense .”
In that tautology there ’ s a wisdom because if someone in our industry explains something to you — it could be a new product or it could be why the valuation of a company is many magnitudes of order higher than everyone else — if that explanation doesn ’ t make sense to you , ask them to repeat it . And if it still doesn ’ t make sense , walk away . And you walk away because there are really only two explanations . The first is you ’ re being sold something or being encouraged to do something that really doesn ’ t make sense . It ’ s the latest form of financial alchemy . It ’ s the newest version of the mythical risk-free return . Or it ’ s the current variant of the four most expensive words in the English language (“ This time it ’ s different ”).
Or the other reason you should walk away — and this is distressingly common — is the person who ’ s promoting the idea doesn ’ t really understand it themselves . They are following a trend or they ’ re relying on a model that ’ s been built by others . And it ’ s this case , when feigned knowledge masks real ignorance , that leads to panic when eventually scales fall from the eyes .
Richard Clarida makes sense . Rich makes sense because he knows the principles of economics , he understands the complexities of financial markets and he appreciates the realities of the world . And that ’ s why his insights have changed
the management of monetary policy and delivered better outcomes for people here in the United States and abroad . His academic work with Jordi Gali and Mark Gertler pioneered the practical use of DSGE ( Dynamic Stochastic General Equilibrium ) models . What you need to know about these models is they ’ re essential for understanding the dynamics of modern economies . They ’ re at the heart of central bank forecasting . They ’ re highly influential on policy decisions . So , if you ’ re a macroeconomist , you apply these DSGE models . If you do so unthinkingly , you ’ re the economic equivalent of the senseless financier that Bob Hearst had warned me about . In other words , these models are powerful to the informed practitioner , but dangerous to the slavish follower .
And this is where Rich stands out . He understands the guts of these models because he ’ s helped build them . He knows their assumptions and , uniquely , through relentless observation of economic , financial market and real economy data , he can not only divine when those assumptions are changing , but he can decide what to do about it . So , in other words , Rich Clarida knows when something that had made sense stops making sense . And this has made him an exceptional public servant during times of great disruption .
During the immediate aftermath of 9 / 11 , the best in this country volunteered to serve where they best could . Those in the military went to the heart of the war against terror . John Whitehead went to rebuild the heart of Manhattan . And Rich Clarida went to the heart of global finance , as the Chief Economic Advisor to Treasury Secretaries O ’ Neill and Snow . This was a time when it was a beginning of a reordering of the global system amidst large global imbalances and the wars on terror and soon amongst currencies . And Rich ’ s pragmatic and global vision helped him understand the risks in this situation and the need for constructive engagement . He played a vital role , for example , in jumpstarting the US-Mexico Partnership for Prosperity , and he worked alongside Randy Quarles to secure international agreement on collective action clauses in sovereign debt to help pre-package workouts .
Once back at Columbia and PIMCO , Rich was amongst the first — if not the first — to identify that there had been a large structural fall in the neutral interest rate in the wake of the global financial crisis . And when the market and policymakers eventually caught up , there were enormous consequences for asset prices and policy . The combination of his technical skills and common sense have kept Rich in constant demand . When I was at the Bank of Canada , we sought his advice on our monetary policy framework , and his perspectives not only helped us avoid recession , but once they were brought to the Bank of England , helped the UK emerge from its deep recession .
When Rich became the Vice Chair of the Fed in 2018 , his interactions with other central bankers became much more frequent . Many of those central bankers were already familiar to him because , like all great leaders , Rich had dedicated himself to developing others including Ben Broadbent , who ’ s Deputy Governor of the Bank of England ; Philip Lane , who ’ s the Chief Economist at the ECB ; and even his successor , Phil Jefferson , who ’ s now Vice Chair at the Fed .
At the Fed , Rich led the development of a new policy framework ( FAIT ), which would help the US escape a looming liquidity trap and secure the world ’ s strongest recovery from COVID . So , to conclude , Rich ’ s intellect , his pragmatism and his generosity are role models for public service . They make him highly worthy of the Whitehead Award .
RICHARD H . CLARIDA
PIMCO ; Columbia University ; Former Vice Chair , Federal Reserve
I ’ m thrilled and humbled to stand before you tonight to accept the Museum ’ s Whitehead Award for Distinguished Public Service and Financial Leadership . John Whitehead himself and the list of previous honorees represent a “ Who ’ s Who ” of policymakers , financial titans , entrepreneurs and legendary investors . Tina , Howard and Chuck : congratulations . I ’ m honored to stand among you this evening at this Gala , which supports the fine work of the Museum . I also want to offer up a hearty and heartfelt thank you to Mark Carney for his generous introduction . Among those of us who have traveled in international policy circles , Mark is a dynamo . Truly one of a kind . He ’ s piloted two G7 central banks
www . MoAF . org | Spring 2024 | FINANCIAL HISTORY 11