Much has been written (especially here) about the Federal Reserve Bank but nothing previously revealed about the Fed comes close to the outrageous arrogance as displayed when they thumb their nose at the government in response to a simple legitimate request for information.
The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance. Let us also remember that the Fed has never been audited by the government since 1913 when this abomination was created at the urging of powerful domestic and international bankers.
The Obama administration, to the surprise of many of us, proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”
But after agreeing to the review, the Fed leadership saw a potential threat to Fed independence after the Treasury released the proposal. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”
“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”
Indeed, the Fed considers itself above the government! So independent it regards itself that the Fed need not respond to requests by the President of the United States – what hubris!
Not only does the Fed ignore the Executive branch but even Congress doesn’t seem to be able to direct the Fed. U.S. lawmakers have also called for a review of the Fed’s power and structure because many in congress believe Fed Chairman Ben S. Bernanke overstepped his authority as he bailed out various businesses such as creditors of Bear Stearns Cos. and American International Group Inc. while battling a crisis that led to $1.62 trillion in write-downs and losses at financial firms.
But nothing was done and the Fed stonewalled congress - no work has been done on the project, which was due October 1. Treasury spokesman Andrew Williams declined to comment as did Fed spokeswoman Michelle Smith – and of course the incompetent news media also did not seek answers.
The country is supposed to be satisfied with the Fed conducting its own investigation. We are told that the Federal Reserve Bank is performing its own reviews of possible operational changes following the financial crisis. Fed Governor Elizabeth Duke is leading an internal study of the roles of the directors that serve on each of the boards at regional Fed banks.
Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and the former director of Division of Monetary Affairs at the Fed Board said “The institution is trying to keep a low profile and to publish a report now invites comment on that report.” Is that supposed to be a bad thing?
By a vote of 96-2 the Senate passed a nonbinding budget amendment in April supporting “an evaluation of the appropriate number and the associated costs” of the district banks. This was sponsored by Senate Banking Committee by Connecticut Democrat Chairman Christopher Dodd and Alabama Senator Richard Shelby, the senior Republican on the panel. But if they were serious, why pass only a “nonbinding” resolution?
Even House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, called for more scrutiny of the central bank, saying he wants to probe how the 12 regional Fed presidents are appointed and their role in setting interest rates. The Fed banks are semi-private entities, each overseen by a nine-member board of directors. Barney, like Obama, says a lot of things that sound good but doesn’t actually do what he says.
Republican Congressman from Texas, Ron Paul, has been one of the few actually trying to do something about the Fed. He has introduced legislation calling for audits of the Fed and is getting increasing support in the House for this effort. There has been also legislation proposed in the senate for the same purpose as well as to look into the Fed’s monetary policies and operations. Thus far the Fed has managed to thwart any meaningful investigations into its affairs.
If it seems that Obama and Democrats are motivated by laudable purposes, do not be self deluded. The fact is that Obama and his government control advocates are preparing the Federal Reserve Bank for a larger role in tracking risks across the financial system and to make the central bank the lead regulator for the largest, most inter-connected financial institutions.
Fed Governor Daniel Tarullo, an Obama appointee, is working on changes to the supervisory process that will prepare the central bank for a larger role than it already has in the nation’s financial system.
Tarullo is focusing on bank-to-bank comparisons and quantitative scenario testing of bank portfolios. Under the guise that the Fed is examining the vulnerability of banks with assets under $100 billion to falling commercial real estate values, look for the Fed to dictate to banks of all size what they may or may not do.
Unfortunately only a few in congress recognize what a threat the Fed poses and have balked at the notion of giving the Fed more power and are leaning toward vesting authority over capital, liquidity and risk-management practices of big banks in a council of regulators.
As an example of the incestuous nature of banking regulation and the calls for “reform,” a review led by Duke followed the resignation in May of Stephen Friedman as New York Fed chairman because of ties to Goldman Sachs Group Inc. Friedman is a director on Goldman Sachs’s board.
Goldman Sachs became a bank holding company in September 2008, a change that would have normally barred Friedman from continuing to serve in his New York Fed post. Officials gave him a waiver so he could remain in the job.
“Allowing local bankers to play a leading role in selecting reserve bank presidents is the most worrying aspect of the current system,” Lou Crandall, chief economist at Wrightson ICAP LLC, recently wrote to clients.
District bank presidents are nominated by committees made up of people whose institutions the nominees may have supervised.
“The conflicts of interest inherent in the current system are glaring,” Crandall said.
We have system where a group of people not responsible to elected officials of the US government have total control of the financial system in the United States and their authority and power grow continuously. Americans sheepishly allow this to happen. Instead of the U.S. Treasury Department being in charge, a group of largely unknown people from largely unknown Fed owners make monumental decisions that are more than not likely to reflect self interest rather than the interests of the American people or the country.
One only has to consider the arrogant refusal by the Federal Reserve Bank of a request for information by the Treasury Secretary to realize this.