The Fight Over the Federal Reserve

by: Mike Lux

Wed Jun 24, 2009 at 12:00


There is a solution to all the complaining by Congress over the Obama administration's plan to give more power to the Federal Reserve. It is a solution that solves the worries people have about giving a secretive, undemocratic institution that blew it in the run-up to this financial crisis more power. It is a solution that looks at least in part to have broad bipartisan support, if one bill with 238 co-sponsors in the House is any indication. It is a solution that Democrats ought to be excited about if they take all their historic statements about government transparency and more democracy seriously.

The only downside is that it would be picking a big policy fight that directly challenges the power of the too-big-to-fail banks.

The idea is simple, has been around for a long time, should have been done a long time ago: make the Fed a more open and democratic institution, rather than the secretive one tied so closely to the big banks it is supposed to be regulating. There are a variety of ideas in this area, some of my favorites being:

  • The Federal Reserve Transparency Act, which now has 238 co-sponsors (weirdly a lot more Republicans than Democrats, but with 47 Democrats led by Alan Grayson). This bill gives GAO the authority to audit the Fed and report is findings to Congress.

  • Requiring the Fed to disclose which banks are receiving trillions of dollars to prop them up.

  • Taking bankers off the governing board of the regional Feds, and making sure that only consumer, labor, and public interest representatives are on the governing boards (currently, banking industry representatives or those affiliated with the banking industry are allowed to have three out of nine seats board seats for each of the 12 Regional Feds). Having those kinds of reps placed inside the Federal Reserve is important as well.

Making the Fed more transparent, and changing the governing structure so that more people than bankers are involved with it, would make it acceptable to progressives to give the Fed more power. Without that kind of restructuring, the issue will not go away, and will likely doom regulatory reform.

Opening up the Fed should be one of the major things progressives demand before they support giving them any more power.

The folks over at FDL have an action page on this, and you can add your support here.
Mike Lux :: The Fight Over the Federal Reserve

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The Fight Over the Federal Reserve | 8 comments
the only reason these banks are powerful (4.00 / 1)
is that we propped them up. Without TARP they would be kaput. So why is Versailles so afraid of them????
Nice! (0.00 / 0)
I have been hoping that more progressives would step up to the plate for this.

This is a good bill that will force the Fed to open up the books so we can see what they are doing.

I understand the arguments about their need for independence free from the political system, but they are just running completely unchecked these days and many folks, myself included, consider the organization to be the vortex of all that is wrong in our economic system.

Not nice! (0.00 / 0)
The Federal Reserve has absolutely nothing to recommend it as a watchdog over the banks. This is a job for an absolutely independent agency, independent from the banks, and not an agency full of bankers!

This is a job for an agency full of ex-FBI and Treasury agents and attorneys with expertise in prosecuting fraud and other financial crimes.

The Federal Reserve is a ridiculous choice, dictated by the same weasels within the Obama adminstration who have so far shoveled $14 trillion of the public's money into the black hole of financial derivatives.

Mike Lux should really stop pretending that this miserable excuse for a watchdog agency can be fixed by a few tweaks.

[ Parent ]
All well and good (4.00 / 2)
but as long as the banks (or any business interest) remain "too big to fail" they will have the power of extortion at their disposal.

Too big to fail is too big to tolerate.  

"It sounds wrong...
     ...but its right."

Agreed. (4.00 / 1)
I completely agree, and will have a companion post about that going up tomorrow.
[ Parent ]
The Economic Populist (4.00 / 1)
You might add us to the list of sites really writing up Congressional hearings and regulatory reform proposals, legislation.

Regulation Power - Where are the Checks and Balances? is the most recent post trying to examine what the actual reforms are and will do.

Tomorrow's Oversight Committee Hearing should be fun (see details coming out on Fed's role in Merrill/BoA forced merger).

Then, some more support, details on Fed Transparency bill to try to get that actually passed.  You know the real opposition is in the Senate.

EP is all econ, 24/7 and it's a community site, everyone gets a blog.  

NoSlaves.com  


The Economic Populist

Yeah this is a great site (0.00 / 0)
and one of my three go to sites on economic issues.  
[ Parent ]
well, the problem with putting the Fed in command is... (0.00 / 0)
...that his has been much more part of the problem, than the solution, in the last years. And then, as Jake Freeze rightfully points out, the Fed isn't an institution of the US government, but an organisation created and supported by the major banks, even though the President appoints its chairman. So, wouldn't this amount to the banks regulating themselves? And then, the Fed is a bank in its own right, why should it assume a second role in becoming an oversight agency? No, sry, but this solution isn't really convincing.  
The Fight Over the Federal Reserve | 8 comments
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