That's the Thing I'm Sensitive About!

Crises have a way of revealing what institutions actually care about, as opposed to what they claim to care about. During the pandemic, the Federal Reserve, regulators, and financial institutions made their true priorities unmistakable through which losses they prevented and which they permitted. The question isn't whether these priorities were stated anywhere. It's whether we'll remember what we learned.

• The Fed and policymakers signaled they were extremely sensitive to declines in risky asset prices, even when that meant abandoning other stated objectives. This wasn't subtle. It was the dominant theme of policy response.
• Yet when it came to permitting equity losses, the sensitivity disappeared entirely depending on which industry was involved. Airlines got protection. Other sectors got the market. The consistency wasn't about principle.
• Banks proved equally clear about their sensitivities by using CARES Act provisions to hide troubled debt and improve their capital treatment, despite that money was theoretically designed for small businesses and families.The mechanism revealed the priority.
• Asset managers and hedge funds showed they were highly sensitive to losing management fee revenue and capital allocations, with pricing that reflected desperation to retain client money. Even amid crisis, their own survival came first.
• These revelations matter because extremes show us what's actually true about how power operates, but only if we stay conscious of it after the crisis ends. History suggests we won't.