Opinion: Fix the Fed
By US Senator Bernie Sanders: As a result of the greed, recklessness and illegal behavior on Wall Street, Americans have experienced the worst economic crisis since the Great Depression. Millions have lost their jobs, homes, life savings and the ability to send their kids to college. Wages as a share of national income are now at the lowest level since the 1930s, and the number of Americans living in poverty is at an all-time high.
Even as small-business owners in Vermont and elsewhere were being turned down for loans at private banks and millions of Americans were being kicked out of their homes, the Federal Reserve gave the largest taxpayer-financed bailout in the history of the world to Wall Street and the too-big-to-fail institutions with virtually no strings attached.
The Fed provided $16 trillion in total financial assistance to every major financial institution in the country as well as to a number of corporations, wealthy individuals and central banks around the world, we learned from Government Accountability Office investigations required by an amendment I included in the Dodd-Frank Act.
Many directors of the 12 Federal Reserve banks, the GAO also revealed, come from the same financial institutions the Fed is in charge of regulating. In addition, the GAO found that at least 18 current and former Fed board members were affiliated with banks and companies that received emergency loans from the Fed during the financial crisis.
In other words the people “regulating” the banks were the exact same people being “regulated” by them. Talk about the fox guarding the hen house!
The Fed’s emergency response appears to have created two systems of government: one for Wall Street and another for everyone else. While the rich and powerful were “too big to fail” and were given an endless supply of cheap credit, ordinary Americans by the tens of millions were allowed to fail.
This is not what American democracy is supposed to look like. It’s time for change at the Fed.
Getting this disclosure about the Fed was not easy. Wall Street and the Fed fought it every step of the way. But as difficult as it was to lift the veil of secrecy at the Fed, it will be even harder to reform it so the system serves the needs of all Americans and not just Wall Street.
But, that is exactly what we have to do. To get this process started, I have asked some of the country’s leading economists to serve on an advisory committee to provide Congress with legislative options to reform the Fed.
Here are some of the questions that I have asked this advisory committee to explore:
1. How can we structurally reform the Fed to make our nation’s central bank a more democratic institution responsive to the needs of ordinary Americans, end conflicts of interest and increase transparency? Compared with central banks in Europe, Canada and Australia, the GAO found that the Fed does not do a good job disclosing potential conflicts of interest and other essential elements of transparency.
2. At a time when 16.5 percent of Americans are unemployed or underemployed, how can we strengthen the Fed’s full-employment mandate? When Wall Street was on the verge of collapse, the Fed acted with a fierce urgency to save the financial system. We need the Fed to act with that same boldness to combat the unemployment crisis.
3. The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions. Given that the country’s top six financial institutions now have assets equal to 65 percent of our gross domestic product, or more than $9 trillion, is there any reason why this extraordinary concentration of ownership should not be broken up? Should a bank that is “too big to fail” exist?
4. The Federal Reserve has the responsibility to protect the credit rights of consumers. At a time when credit card issuers are charging millions of Americans interest rates of 25 percent or more, should policy options be established to ensure that the Fed protect consumers against predatory lending and exorbitant fees in the financial services industry?
5. At a time when the dream of homeownership has turned into the nightmare of foreclosure for too many Americans, what role should the Fed play in providing relief to homeowners who are underwater on mortgages, combating the foreclosure crisis and making housing more affordable?
6. At a time when the United States has the most inequitable distribution of wealth and income of any major country, and the greatest gap between the very rich and everyone else since 1928, what policies can be established at the Federal Reserve which reduces income and wealth inequality in the U.S?
Given the growth of the Occupy Wall Street movement — and millions of Americans’ concerns about Wall Street — we now have a unique opportunity to make significant changes to one of the most powerful and secretive agencies of the federal government.
One thing is clear: Americans deserve a Federal Reserve that works for them and not just the chief executive officers on Wall Street.