The Long Crisis

Posts Tagged ‘Federal Reserve Bank’

Ben Bernanke was recently confirmed by the United States Senate for a second term as chairman of the Federal Reserve Board. While 30 senators opposed the Bernanke nomination the fact that he was reappointed indicates that in Ben Bernanke we trust. After all, the man has the second most powerful job in the world at a time when the US and the global economy are suffering the worst economic downturn since the Great Depression. The decisions that he and the Federal Reserve Bank makes will be crucial to restoring economic growth for the US economy.

However, when one looks at the Bernanke track record prior to and during the crises that occurred during his first term in office one has to wonder why in the world the man’s judgment could still be trusted? While he seems to be a sincere enough and nice enough guy, as shown in the video, he has consistently been wrong in his judgment as to the status of the US economy.

While considered to be an expert as to why the United States entered into a Great Depression and in how the nation was restored to economic growth Bernanke seems to have a simplistic view as to how the economy works. He seems to think that the economy works as some kind of mechanical machine. All one has to do to keep it running smoothly is to pull a few levers here and push a few levers there. Apparently he thinks that market forces can be overcome by fine tuning the machine. He shows no signs of realizing just how much human emotions enter into the mix.

While Bernanke acted aggressively and quickly once the economy began to fall apart during the latter part of 2007, as you will see in the video, he had absolutely no clue that bubbles were being formed in the real estate market as well as in equities that would soon pop with devastating results. Unfortunately, I fear that we will soon see that the actions of the Federal Reserve Bank, as led by helicopter Ben, may have helped early on to stabilize the economy the actions will have disastrous long-term effects.

For one thing under his leadership the Federal Reserve Bank engaged in a “cash for trash” program that extended credit to favored banks and institutions, such as AIG, in exchange for toxic assets of questionable value. The strength of the Federal Reserve’s balance sheet had to be seriously impaired due to this and other actions initiated by Bernanke.

All one has to do is to watch the video to see how truly clueless Ben Bernanke was during his first term as chairman. However, the President and the Senate seem to still be confident that he is a man that we can trust to help guide the nation out of the economic wilderness. Based upon his track record so far, the question is why?

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The Obama team plans to grant the Federal Reserve Banking System even more power than they now have. Tim Geithner, Secretary of the Treasury, is out pimping the expanded role of the Fed to a less than enthusiastic Congress. The administration’s regulatory proposal “represents a grossly inflated view of the Fed’s expertise,” said Senator Shelby, of Alabama.

Senator Dodd, a Connecticut Democrat, quoted one critic’s view that giving the central bank more power was like awarding a son a “bigger, faster car right after he crashed the family station wagon.” He added that he hadn’t made a conclusion on the issue.

What do you think? Should Congress grant the Fed even more power to regulate the financial life of everyone in the United States? Should you trust an institution that tells you that they are not owned by anybody?

For additional information about the Fed read the following information directly from the Fed’s website. Note that it is Congress that controls the Fed. And who controls Congress? It’s likely not who you think as taught to you in your high school civics class. Try special interest groups, not the people of the United States.

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What is the Federal Reserve System?

The Federal Reserve System, often referred to as the Federal Reserve or simply “the Fed,” is the central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role has evolved and expanded.

When was the Federal Reserve created?

The Federal Reserve was created on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson. The act had been drafted as House Resolution 7837 by Representative Carter Glass (D-VA), incoming chairman of the House Banking and Currency Committee.
What are the Federal Reserve’s responsibilities?

Today, the Federal Reserve’s responsibilities fall into four general areas:

* conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
* supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
* maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
* providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation’s payments systems

How is the Federal Reserve System structured?

The Federal Reserve System has a structure designed by Congress to give it a broad perspective on the economy and on economic activity in all parts of the nation. It is a federal system, composed basically of a central, governmental agency–the Board of Governors–in Washington, D.C., and twelve regional Federal Reserve Banks, located in major cities throughout the nation. These components share responsibility for supervising and regulating certain financial institutions and activities; for providing banking services to depository institutions and to the federal government; and for ensuring that consumers receive adequate information and fair treatment in their business with the banking system.

A major component of the System is the Federal Open Market Committee (FOMC), which is made up of the members of the Board of Governors, the president of the Federal Reserve Bank of New York, and presidents of four other Federal Reserve Banks, who serve on a rotating basis. The FOMC oversees open market operations, which is the main tool used by the Federal Reserve to influence money market conditions and the growth of money and credit.

Who owns the Federal Reserve?

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.”

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
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Visit the Federal Reserve Bank Bank website for more information about the US Federal Reserve Banks and Federal Reserve system.

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