It's almost impossible to believe, but the Federal Reserve apparently took no lessons from the 2008 financial crash. A scant four years after Wall Street and the banking industry crippled the U. S. economy, many of those same CEOs are now guiding policy at the Federal Reserve.
It’s almost impossible to believe, but the Federal Reserve apparently took no lessons from the 2008 financial crash. A scant four years after Wall Street and the banking industry crippled the U. S. economy, many of those same CEOs are now guiding policy at the Federal Reserve.
Somehow the old metaphor of the fox guarding the henhouse fails to fully capture the lunacy of this situation. Doesn’t the Fed recall that those very same banking moguls took the largess of the taxpayers’ bailout to pay themselves huge unrepentant bonuses instead of loaning the money as then Treasury Secretary Henry Paulson and company had planned? Apparently not.
In response to this nightmare of conflicted interests, Sens. Bernie Sanders (I – VT) and Barbara Boxer (D - CA) have proposed The Federal Reserve Independence Act (s. 3219). If codified, the Federal Reserve Independence Act would accomplish three goals: Prohibit banking executives or employees of companies regulated by the Federal Reserve from serving on the Federal Reserve’s board of directors; Prohibit the banking industry from choosing any members of the Federal Reserve’s board of directors; Prohibit Federal Reserve employees or board members from owning stock or investing in companies that the Fed regulates, supervises or oversees with absolutely no exceptions.
Heather McGhee, vice-president of Demos, a progressive news center, said of the proposal, “Since the establishment of the Federal Reserve, there have been many directors that have held positions at the Fed while simultaneously leading the firms the Fed must regulate. JPMorgan Chase CEO Jamie Dimon is just the latest and most obvious example. The stakes have gotten too high and the systemic risk too broad for us to ignore this inherent conflict of interest.”
We could not agree more. While banking industry officials they have an admitted expertise in the matter, their self-interests are too inseparable.
As the text of the Senate bill acknowledges, “Eighteen former and current members of the boards of directors of Federal reserve banks were affiliated with banks and companies that received emergency loans from the Federal Reserve System during the financial crisis…Many of the members of the boards of directors of Federal reserve banks own stock or work directly for banks that are supervised and regulated by the Federal Reserve System. These board members oversee the operations of the Federal reserve banks, including salary and personnel decisions.”
Of course, we’ve been down this road before. We call that period the Age of Robber Barons. As Cornelius Vanderbilt is alleged to have said upon hearing that his business practices might be violating the law: “Law? Who cares about the law. Hain’t I got the power?”
If enacted, no one who works for or invests in a firm receiving direct financial assistance from the Federal Reserve System would be allowed to sit on any board of directors of a Federal reserve bank or be employed by the Federal Reserve System. In the end, it’s hard to argue with such obvious ethical logic — or to imagine that such appointments aren’t already barred. Without such protections, the only interests served by the current system could end up being those from the industry being regulated.
Making them move just a little further away from the taxpayers’ collective trough harms no one. Moreover, it might actually make way for oversight policy that is actually that — an oversight policy.