In order for Americans to have confidence in our economy, decisions made at the highest level must be made openly and subjected to public scrutiny. Robert Reich questions why the new financial reform bill, currently under negotiation, allows so much power to the most secretive of organizations.
The Fed has finally came clean. It now admits it bailed out Bear Stearns — taking on tens of billions of dollars of the bank’s bad loans — in order to smooth Bear Stearns’ takeover by JP Morgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.
The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed — then run by Tim Geithner — was very much in the center of the action.
This raises three issues.
- First, only Congress is supposed to risk taxpayer dollars. The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself. Thomas Jefferson put a stop to Alexander Hamilton’s idea of a powerful central bank out of fear it would be unaccountable to the public. The Fed has just proven Jefferson’s point.
- Second, if the Fed can secretly bail out big banks, the problem of "moral hazard" – bankers taking irresponsible risks because they know they’ll be rescued – is far greater than anyone assumed after Congress and the Bush and Obama administrations bailed out the banks. Big banks will always be too big to fail because they know the Fed will secretly back them up if they get into trouble, even if Congress won’t do it openly.
- Third, the announcement throws a monkey wrench into the financial reform bill now on Capitol Hill, which gives the Fed additional authority by, for example, creating a consumer protection bureau inside it. Only yesterday, Sen. Jim DeMint (R-S.C.) blasted the Dodd bill for expanding the Fed’s authority "even as it remains shrouded in secrecy."
The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.
That it chose to reveal the truth about its activities during a week when Congress is out of town, when much of official Washington and the Washington media have gone on vacation, and only after several federal courts have held that the Fed must release documents related to its bailout of Bear Stearns, suggests it would rather remain secret than become transparent.
Much of what Ben Bernanke and Tim Geithner did (when Geithner was at the New York Fed) in 2008 was presumably necessary. But the public has no way of knowing…[emphasis added]
Inserted from <Huffington Post>
Reich is right. If the fox is to guard the henhouse, who will guard the fox? The Fed is not suited for the role of regulator. In fact, it needs to BE regulated.
12 Responses to “Financial Reform Demands Transparency”
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I find it hard to believe that this was not done in collusion with the other financial arms of the rest of the G8 or G20 even. Governments have been pushing the one world economic since GATT and now that the modality of that system has shown its great weakness’ (greed of the individual) there has to be more than simple transparency there has to be a break up of the entire economic for regional (more manageable) control that would more easily allow a strong sector of the economic to prop a weak sector during recovery.
Mark, that’s probable, but I have no evidence to support the position. Are you scggestion that we do away with the Fed. If so, who should perform it’s monetary functions?
TC – I agree with you and actually, DeMint as well. The Fed should be regulated and this type of bailout BS should not be allowed. Again, putting the CFPA under the Fed is a bad idea – it needs to be a cabinet position, independent of the Fed.
Lisa, I do agree that a bailout was necessary, but the way in which the Bush Regime conducted it was horriffic at best. I think that the Feds role should be strictly monetary and that all regulatory functions, especially the CFPA, be elsewhere.
The collapse was a clear indication we needed to nationalize, or at least break up, the banking system. Either the government regulates banks or banks regulate government. Another collapse may as well already be written in stone,
“Too big to fail “IS failure.
Amen, Dave!
I would say those parasitical and wholly unproductive thieves and barnacles on Wall Street should be exhibiting much more transparency in THEIR dealings! This stuff of “all’s fair in love, war, and business” is shit for the birds!
Thed only way that will happen is if we pass and enforce regulations that require it.
The problem as I see it, and it may be unique to me, is that a lot of this “banking” rhetoric is more like Chinese than anything. I can speak German, French and Italian, understand Vietnamese but have no clue when it comes to Economics 101….So I wouldn’t know transparency from a solid wall…..
BTW TC: I need to learn how you manage to block your reference posts, i.e Huff Post, in this article. It is stylish and professional..
Mike, my experience is linited to Economics 101 – 103, but I’ve done enough independent study that I speak some of the jargon and know how to research the rest, when needed.
I’ll email you on the tools I use.
A lot of this has already been documented.
But I wonder, why is Ben Bernanke still working?
Ivan, Ben is still working, because the banksters were able to buy enough Democrats to confirm him, along with the GOP, which they already own.