The Fed: Bank-owned; beyond control of Congress; pumping trillions to banks
Most Americans believe the Fed is a branch of the U.S. government, but it’s not. Banks own the Federal Reserve banks and exert substantial control over their operations. According to FactCheck.org:
The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System… They do receive dividends of 6 percent per year from the Reserve Banks and get to elect each Reserve Bank’s board of directors.
62% of U.S. banks have no ownership stake in the Federal Reserve banks:
About 38 percent of the nation’s more than 8,000 banks are members of the system, and thus own the Fed banks.
Because large banks own a disproportionate share of the Federal Reserve banks, they presumably exert disproportionate control. This makes me wonder whether political power of large banks at the Fed is playing a role in the government’s refusal to force Citibank, Bank of America, etc. into the same type of “restructuring” that smaller banks with negative equity are regularly forced into. Obviously, the prominent role of bankers (esp. bankers with ties to Goldman Sachs) at the top of the Obama Administration is helping protect them. But this may also happen to some extent at the Fed.
When reformers suggest the Federal Reserve should play a larger role in regulating banks, it’s a strange notion. Do we really want banks regulating the banks that own them?
Beyond regulatory concerns, the Fed is pumping trillions of dollars to private firms, much of it in secret and beyond the control or even knowledge of Congress. Do we really want to allow bank-owned private banks to direct trillions of dollars in secret? Perhaps it’s time for us all to read up on Andrew Jackson and the Bank of the United States. The Fed does many great things. But we should be able to improve its accountability, incentives and transparency. Writes Matt Taibbi:
By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you’ve never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there’s also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.
While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments)…
No one knows who’s getting that money or exactly how much of it is disappearing through these new holes in the hull of America’s credit rating…
None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn’t like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include “deliberations, decisions and actions on monetary policy matters.” The exemption, as Foss notes, “basically includes everything.” According to the law, in other words, the Fed simply cannot be audited by Congress.
Posted by James on Sunday, March 22, 2009