Tag: bernie sanders

A Modest Proposal to Improve Federal Reserve Bank Governance

Recent losses at JP Morgan, and Jamie Dimon’s position on the board of the New York Federal Reserve Bank, have renewed debates as to who should be eligible to sit on the boards of the twelve regional Federal Reserve Banks. In yesterday’s on-line New York Times, Simon Johnson raises additional, and important, questions as to the appropriateness of Dimon’s presence on the NY Fed’s board.

Senator Bernie Sanders (I-VT) has also introduced a bill, S. 3219, that would remove bankers from the regional Fed boards. Representative Barney Frank (D-MA) would go as far as removing the regional bank presidents from the Federal Open Market Committee (FOMC)—although I suspect this has more to do with wanting inflation than anything else. Frank has even proposed replacing those members with additional members appointed by the president of the United States, as if the current Fed is not already too aligned with the White House.

Rep. Frank has called his proposal to pack the Fed with White House loyalists “increased democratization” of the Fed. Frank is, of course, correct to say that regional Fed presidents who sit on the FOMC “… are not subject to a confirmation process by elected officials, and instead are chosen by regional Federal Reserve Bank directors who effectively are appointed by large commercial banks in each region.” [Emphasis in original.]

Here’s my modest proposal to “increase democratization” at the Fed, but to do so in a manner that actually gives more voice to the American public: have the governors of states within the various Fed regions appoint some, or even all, of the board members of the regional Feds. In districts, such a Philadelphia or Cleveland, the governors could appoint multiple members, with over-lapping terms, so that board would have a reasonable minimum size.

To truly increase the “democratization” of the Fed, we should also remove the various vetoes that the DC-based Federal Reserve Board has over regional Fed Bank governance. For instance, Section 4-4 of the Federal Reserve Act requires approval of the DC board of regional bank president appointments.  That allows the Fed to reject anyone who might challenge the status quo. Under any circumstances, having the Fed Board appoint a third of the directors (class C) of the regional banks is also problematic.  Rather then represent Washington’s interests, all regional directors should be either appointed or elected within the region, and without the need for Washington’s approval.

These modest changes could improve the accountability of the Fed, helping the break the dominance of the current Cambridge-Wall Street-Washington group-think that has so badly undermined the Fed. Of course none of this should deter us from exploring alternatives to the Fed.

Senate to Limit ATM Charges?

The great thing about Cato policy papers is that even sometimes obscure topics are timeless, because government never rests when it comes to running our lives and restricting our choices.

Take the issue of bank ATM surcharges, those fees you can sometimes be charged for using another bank’s ATM.  Back in 1998, then Senator Al D’Amato proposed capping those fees.  Thankfully that effort failed.  I would like to believe one of the reasons for its failure is a 1998 Cato Briefing Paper by John Charles Bradbury, describing how ATM surcharge fees actually increase consumer choice by funding ever increasing ATM locations.

Well the Senate is at it again.  Senator Harkin has proposed an amendment to Dodd’s financial regulation bill that would cap ATM surcharge fees at 50 cents (it is not clear where Harkin came up with that number, perhaps his love of music).  The same flaws in D’Amato’s scheme twelve years ago hold true today.

The other great thing about existing Cato briefing papers is that it saves me the work of writing on the topic.  Just as well since I don’t believe I could improve upon Bradbury’s conclusions:

Consumers have the ability to obtain money from their bank accounts without paying a surcharge. ATM surcharges allow banks and other ATM operators to deploy machines in more convenient locations than might otherwise be possible. Customers who are unwilling to pay a surcharge incur the cost of inconvenience, while those who value the convenience more than the cost of the fee have the option of paying for it. Senator D’Amato, Rep. Bernie Sanders (I-Vt.)–Congress’s self-proclaimed socialist–and numerous consumer groups have formed an unlikely coalition to put an end to ATM surcharges. If successful, that campaign would limit the options of consumers, since there would be no means to support the more convenient ATM machines. Prohibiting ATM surcharges would only harm consumers by slowing the expansion of ATMs and reducing the number of ATMs currently deployed without making anyone better off.

Federal Reserve 1, Transparency 0

It is being reported that the Senate has reached a “compromise” on Bernie Sanders’ amendment to audit the Federal Reserve.  This amendment was a companion to Ron Paul’s House bill that would have subjected both the Federal Reserve’s lending facilities and monetary policy to a GAO audit.  The compromise?  Drop the monetary policy audit.  It is hard to match Ron Paul’s reaction:  “Bernie Sanders has sold out.”

Congressmen Paul is 100% right on this.  While it is important to get details on the Fed’s emergency lending facility, those decisions are behind us.  The public has a right to know who benefited from the Fed’s actions, but the reality is that such an audit would change little going forward.  The real action is monetary policy.

After having spent seven years as a staffer on the Senate Banking Committee, I can attest that most senators, congressman and their staff have little understanding of the mechanics of monetary policy.  Just listen to any random appearance of the Fed chairman before Congress and you will immediately know what I mean.  But then, congressman in general don’t understand the workings of most federal programs.  That is one of the purposes of the GAO: to help explain to Congress how programs work and evaluate how well those programs are working.  I can think of no area more in need of such understanding than monetary policy.

Of course, some worry that an audit would undermine the claimed independence of the Fed.  For instance, former Hartford insurance exec, now Obama Treasury official, Neal Wolin praised the compromise, claiming the original language would “threaten the central bank’s independence from Congress.”  Sadly, Mr. Wolin is confused about the nature of the Fed.  If there is a constitutional basis for the Fed, it is Article I, Section 8’s delegation to Congress of the ability “to coin money, regulate the value there of,”  which Congress has delegated to the Fed.  The supposed independence of the Fed is from the Executive branch, not Congress.  And one of the very reasons for an audit is for the public to have a window into the dealings of the Fed with the Executive branch, most importantly the Treasury.  What Mr. Wolin and others are trying to protect is the favored relationship between Treasury and the Fed.  A GAO audit would shift the balance of power over the Fed away from the Executive and back to Congress, who despite its many problems, is directly accountable to the American public.

The gutting of the Sanders’ amendment is a huge win for both Wall Street and the Treasury (is there any longer a difference between the two?), and a massive loss and missed opportunity for the American public, and its representatives in Congress, to regain some control over an agency (the Fed) that has acted as a piggybank for both Presidents Bush and Obama.

How Many Senators Are More Liberal than the Socialist One?

In a profile of the poetry-reading chief of staff to Sen. Bernie Sanders (I-VT), the Washington Post calls Sanders not only “the only socialist in the U.S. Congress,” but also “surely [the Senate’s] most liberal [member].” Surely. I mean, he’s a socialist, right? (And by the way, that isn’t a label that Sanders rejects.)

Well, maybe not. According to the National Taxpayers Union, 42 senators in 2008 voted to spend more tax dollars than socialist Bernie Sanders. They include his neighbor Pat Leahy; Californians Barbara Boxer and Dianne Feinstein, who just can’t understand why their home state is in fiscal trouble; and the Eastern Seaboard anti-taxpayer Murderers’ Row of Kerry, Dodd, Lieberman, Clinton, Schumer, Lautenberg, Menendez, Carper, Biden, Cardin, and Mikulski. Don’t carry cash on Amtrak! Not to mention Blanche Lambert Lincoln and Mark Pryor of Arkansas, who apparently think Arkansans don’t pay taxes so federal spending is free. Sen. Barack Obama didn’t vote often enough to get a rating in 2008, but in 2007 he managed to be one of the 11 senators who voted for more spending than the socialist senator.

Meanwhile, the American Conservative Union rated 11 senators more liberal than Sanders in 2008, including Biden, Boxer, Feinstein, and again the georgraphically confused Mark Pryor. The Republican Liberty Caucus declared 14 senators, including Sanders, to have voted 100 percent anti-economic freedom in 2008, though Sanders voted better than 31 colleagues in support of personal liberties.  The liberal Americans for Democratic Action provides more support for the Post’s claim, rating Sanders 100 percent liberal. Most raters, though, don’t see it that way. In this compilation of ratings from left-leaning interest groups, 17 senators get higher scores than Sanders.

It almost seems that an avowed socialist is middle-of-the-road among Senate Democrats.