They're Both Right

In the ongoing cleanup of our financial meltdown, it is wise to keep attention on who is blaming whom, and why. Any sort of common sense reading of the shenanigans within the banks leads one to feel Federal Reserve Chairman Bernanke has this right:

Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday. [snip] Mr. Bernanke, in his talk, echoed his previous calls for Congress to grant the Fed greater oversight powers over the financial system, like the ability to help monitor and regulate against “systemic risk.” [snip] Mr. Bernanke has pointed to the Fed’s extraordinary efforts to stem the crisis, including the creation of new lending vehicles to banks and a reduction of bank-to-bank interest rates to virtually zero, as evidence that the Fed has a firm grasp of what the economy needs. The Fed’s handling of the crisis has been widely praised by economists.

And yet, is the Fed itself regulating itself with the best interests of We The People at heart? Some, from both the Right and the Left, think otherwise:

“I strongly disapprove of some of the past deeds of the Federal Reserve while Ben Bernanke was a member and its chairman, and I lack confidence in what little planning for the future he has articulated,” Richard Shelby of Alabama, the Senate Banking Committee’s top-ranking Republican

And Vermont Senator Bernie Sanders (I-VT) adds this:

“The American people want a new direction on Wall Street and at the Fed. They do not want as chairman someone who has been part of the problem and who has been responsible for many of the enormous difficulties that we are now experiencing,” Sanders said. “It’s time for a change at the Fed.”

It probably matters that We understand just what the Federal Reserve is. This transcript from the Thom Hartmann radio show on Air America states it in a pretty clear way:

“The Federal Reserve System is not “owned” by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.

As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.”

This again from Senator Bernie Sanders:

The Federal Reserve has four main responsibilities: to conduct monetary policy in a way that leads to maximum employment and stable prices; to maintain the safety and soundness of financial institutions; to contain systemic risk in financial markets; and to protect consumers against deceptive and unfair financial products.

Since 2006, the Fed has poured literally trillions of dollars into Wall Street corporations and banks at nearly zero percent interest Did We The People get what we need from that sweetheart deal? I think not. During that same time unemployment doubled, more than 120 banks have failed on Bernanke's watch, the value of risky derivative investments nearly tripled from $110 trillion to $290 trillion and that risk became concentrated in just five institutions, predatory lending practices flourished despite the FBI warning of an epidemic of mortgage fraud, and, as a final slap in the face, the Fed could have acted transparently during the TARP bailout but instead chose to not reveal which banks got money nor how much and under what terms. (refer to Sander's link, above)

Both of the sentiments listed at the top of this post are correct. The Fed needs monitoring and needs to be held accountable for its actions. That may mean that the Fed needs more authority to do that job. Those are not mutually exclusive concepts. It means that we have someone whose job it is to watch out for We The People provides oversight of the Federal Reserve. And that ultimately means an elected official and a Fourth Estate that actually does its job (for a change). In the olden days they had pitchforks and torches. We need a press that functions in much the same way.