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Home Publications Blogs Beat the Press Don't We Need a Fed That Is Independent of Wall Street?

Don't We Need a Fed That Is Independent of Wall Street?

Sunday, 04 August 2013 05:38

Steven Pearlstein had a strange piece in the Post today arguing that Janet Yellen would be a better Fed chair than Larry Summers because Summers is too closely tied to the Democratic Party and we need a chair who is politically independent. While a politically independent Fed chair might be desirable, the Fed's biggest mistake over the last two decades has been its unwillingness to take steps to burst bubbles: the stock bubble in the 1990s and the housing bubble in the last decade. The country has paid an enormous price for this failure.

One possible explanation for this failure is simple incompetence. That would mean Alan Greenspan either didn't recognize the bubbles or didn't realize the impact that their collapse would have on the economy.

An alternative explanation is that Greenspan was aware of the risks posed by the bubbles, but knew that Wall Street was making vast amounts of money off both of them. (They were backing IPOs in the stock bubble and mortgage backed securities in the housing bubble.) Insofar as this is the case, then the real need for independence at the Fed is independence from Wall Street. We need a Fed chair who is prepared to take steps against a bubble even if means taking away a big money-maker from Wall Street.

On this score Yellen also would have a clear edge. Summers has received millions of dollars in consulting and speaking fees from Wall Street banks and hedge funds in the years when he was not in government. This raises questions about the extent to which he would be prepared to crack down on dangerous practices by the financial industry. While Yellen also did not advocate cracking down on the bubbles in her various public policy positions at the time, she does not have a history of receiving large payments from the financial industry.

Comments (9)Add Comment
You're Both Right
written by PJR, August 04, 2013 8:58
Yellen is more independent of Wall Street and politicians. And it's more than a case of the former owning the latter. The the Fed Chair should be free of political biases that interfere with the concept that the economy is supposed to work for all of us, and not just a politically influential subset. This could mean Fed action to strengthen the impacts of political (fiscal) policies, or Fed action to mitigate the impact of these policies, depending on the policies. Yellen far more than Summers appears to embrace this task.
Is there a difference?
written by Jennifer, August 04, 2013 9:14
Left unstated is the reality that the Democratic Party goals, at least in practice, are hardly distinguishable from Wall Street's goals.
Why does the left like the Fed?
written by pete, August 04, 2013 10:34
This always bothers me. JP Morgan who dreamed up the Fed was not a socialist. The structure of the Fed is as a bankers bank. It was not designed to be a macroeconomic tool, but rather to manage banking. As such, the Fed should indeed respond to the banks who form its ownership structure. The Fed is not a "government agency" like the treasury or the SEC. Picking an economist like Summers or Yellen is interesting, but it could just as easily be a former banker, somebody who understands how money is created beyond the simple purchase of treasuries with cash. Greenspan lost the connection, and Bernanke seems clueless. The money supply has not budged while the monetary base has skyrocketed. We really need somebody who gets monetary expansion, lending, etc.
Summers and Wall Street
written by John Q, August 04, 2013 3:06
This raises questions about the extent to which (Summers) would be prepared to crack down on dangerous practices by the financial industry.

We all remember that when people pointed out the dangers posed by crackpot rickety "financial instruments", he called the critics "luddites".
Greenspan's Problem
written by Dryly 41 , August 05, 2013 3:10
The Maestro told Brooksley Born that he didn't think laws against fraud should be enforced as the market would take care of any unsavory behavior. Lots of fraud ensued. This is the role of government envisioned by the Russian atheist Ayn Rand and Alan was acutally a member of that cult. She called him "The Undertaker".
written by Dan Kervick, August 05, 2013 9:36
In this case, the issues of political independence and Wall Street independence are related. The problem isn't that Summers has political loyalties and a party affiliation. That's true of almost everyone in government. The problem is that Summers's particular role in politics has been his closeness with an elite coterie of money men who use their role on Wall Street to direct funds into party coffers, and are rewarded with lax regulation and shielding from prosecution. The revolving door is also wide open, and Summers himself has taken great advantage of it. Do people think Summers millions made from part-time work for D. E. Shaw was all just because he was a brilliant quant?

Summers is also part of the revolving ivy gate: star economists who move back and forth among in industry, government and academia. As academics they produce research favorable to finance, and then they are rewarded with government appointments and corporate hires. He and the Harvard Boys wrecked and looted Russia, and then Summers provided protection for one of the more notorious of those boys in his role as Harvard President. After losing $1 billion for Harvard in swaps investments as president, Summers stepped down and became the highest paid faculty member.

Summers is the virtual poster boy for crony capitalism.

written by http://www.freeloveforsingles.com/my_profile/blog-view/blog_8695.htm, August 05, 2013 10:43
written by http://www.enstarz.com/community/blogs/20612/50779/good-bca-colleges-in-india, August 05, 2013 10:46
written by Honest Insider, August 06, 2013 5:05
Yes, of course we need a fed "reserve" that is not connected to Wall St, however, that will never happen. The only people that want this separation is the 330,000,000 million citizens that aren't related or friends with fed reserve personnel. The "reserve" as we were lead to believe was bank or treasury storage for our taxed money. A big fault where money and income from hard working families resides for the people by the people. But we all know that is fake and the joke was on our grandparents, our parents, now us and our next generation of kids that will have to go to China or Indonesia for work. The only thing the US makes as of 2013 is box of matches, cigarettes, artillery, weapons, guns and hidden bunkers.

The federal reserve does not have nor collect billions in taxes that the Fortune 500 companies owe because they don't enforce law in American's favor. Matter fact, the invest in those companies so want as much of their share as possible. Given it's their own buddies and their favorite billionaires why would they have to chip in to the affairs when they can screw us even worse?

Can anyone find data on when the last multi-billionaire corp paid his due taxes instead of only finding his receipts from the island accounts? A good idea would be to close all your bank accounts now and cash in or hide it in the Nevis island bank and work like them. Why not?

Money supplied to Bernanke over past 7.8 years only came from those that cook their food, teach their kids, serve their food, pour their drinks, groom their dogs, shine their shoes, take their calls, mow their laws as well as open their doors, and gas up their cars. The only thing you can do is spit in their food, or whatever else makes you feel better because it isn't going to change for the better for the many yous.

All of Wall Street firms dodge laws because it's run from their uncles, fathers, brothers, cousins, best friends from college, Harvard or Princeton. Whatever uni their daddy's paid for their attendence and tuition. The rest of you would be wise to take a trip to Nevis, Caymen, Israel, Barbados, St. Kitts and get financial info for yourself on US corporate news while opening your own account.

The new chair will continue to squeeze all the dollars and change from the 330 plus million of us. Those trillions will not be put back into schools, feeding kids, roads, repairs, good hearted organizations, nor safety, security, food stores, teachers, pensions, vets etc. They are hardcore jewish people why would they help you out?

They live on Wall street, play on Wall street, eat on Wall street, fuk on Wall street and have their families near Wall Street. All chairs were elected to specifically manipulate markets on Wall street and pretend a dollar isn't really 100 pennies, that it can flucuate.

What they do is simple, tell you all this hogwash while they successfully, and sneakily pocket $5.6 trillion dollars and everyone's too stupid to prosecute or reprimand harshly. Forget your kids schools, they will never get the funds they need you have to go to the chair's house yourself and ask for the money back from your paychecks because it won't come any other way.

They want more profit. They want more of your income and checking accounts and passwords as usual this is not new this is the way it's always been. They're not exactly the type to be feeding the homeless or tending to a dying child. They don't view charity as anything but a waste so don't think the feds gonna put someone honest in for the very first time.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.