Nothing of what Robert Reich writes below surprises me. What surprises me
is that Robert Reich was not aware that some financial jiggery-pockery
going on by the Fed when he was in Clinton's administration.
It's a nonsense for Robert Reich to call America a democracy. To a greater
or lesser extent in all advanced countries what we have is a manipulated
electorate.
Keith
At 11:41 02/04/2010 -0700, you wrote:
<http://www.huffingtonpost.com/robert-reich/the-fed-in-hot-water_b_522059.html>http://www.huffingtonpost.com/robert-reich/the-fed-in-hot-water_b_522059.html
Robert Reich
Former Secretary of Labor, Professor at Berkeley
Posted: April 1, 2010 02:48 PM
The Fed in Hot Water
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. The public doesn't even know who else the Fed has bailed out,
or what entities it will bail out in the future. All we know is the Fed
secretly bailed out Bear Stearns and AIG and thereby subjected taxpayers
to risks that remain even today, without informing the public. That's not
a record on which to build public trust.
Cross-posted from <http://RobertReich.org>RobertReich.org
Keith Hudson, Saltford, England
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
