March 21, 2017

OK, Greens: Positive ideas to reform the Federal Reserve, not trash it

I am not in the camp of some Greens, and some other left-liberals and beyond, who adopt a quasi-Libertarian (small or capital 'L") and quasi-conspiratorial take on the Federal Reserve. Indeed, I met one of those libertarian folks at an early 2009 rally and protest outside the Dallas Federal Reserve.

The reality is (with reference to Wiki's page on the Fed):

1. We need some sort of national banking system. Per Lincoln's comment about replacing McClellan, if you want to replace the Fed, what will you replace it with? Outside the Great Depression, and to a lesser degree by far, the Great Recession, almost all of American’s major financial storms came about because we had no national banking system. That includes the Panic of 1837, the Panic of 1873 and the Panic of 1893 — the latter two were both worse than the Great Recession, while the former lasted longer and the latter, at its worse, almost matched the Great Depression in its severity. There was also the brief, but sharp, Panic of 1907.

2. The Fed did what it could post-2009 on the economy, due to Dear Leader not proposing a large enough, vigorous enough relief/stimulus package and Republican Congresscritters blocking later efforts to expand that. To the degree the Fed, whether the national “The Fed” or the regional banks, had problems and contributed to the Great Recession, Obama can be faulted along with the majority of both parties in Congress for not taking a look.

3. An(other) allegedly progressive Democratic president, Wilson, gave us the most business-friendly, banker-friendly alternative on a national banking system he could devise. That’s especially true of the various regional Federal Reserve banks, like the Dallas Fed. Given that their presidents rotate on and off the board of the national “Fed Open Market Committee” and that these regional Feds are almost totally the captive creature of private-sector financial interests, this is a problem indeed.

This fact is illustrated by the Internet. “The Fed” has a “.gov” suffix on its board of governors URL. Regional Feds like “The Dallas Fed” have “.org” suffixes, as does “The Fed” itself outside its board of governors. (Links for all regional Feds are on the Wiki page near the top.)

Of course, this just underscores the truth behind the old adage that the Fed, at the national level, likes to pretend it’s a public entity when that strengthens its powers, but a private entity when that works better.

4. Back to history, briefly Before Tommy Wilson, TR — even though he had to send himself as "his man" to visit J.P. Morgan, hat in hand, in 1907 during the "Panic" of that year — refused to touch the issue, just as he refused to touch a 16th Amendment for an income tax.

The reference is to the 1902 Northern Securities trust-busting legal procedures, when Morgan said, why can’t T.R. send his man to my man and we’ll just fix things up?

The oft-maligned Taft gets credit for both doing that — an income tax amendment — and reducing a high tariff, even though that involved tradeoffs to get the 16th Amendment voted out of Congress and sent to the states.

Anyway? Greens and independent-minded left-liberals and beyond? Rather than gutting the Fed, talk about how you would reform it to make it better.

My thoughts?

Reform of the Fed must, must, must start with reform of the regional Feds. And, that reform must include taking at least part of the private sector’s sole power at the regional feds away from it. Period and end of story.

The U.S. is the only major nation whose central bank is a public-private hybrid, let alone one with that much regional power.

A minimum for reform would be that one-third of the board of each regional Fed is a public-sector presidential appointment. (Currently, per Wiki's article on the structure of the fed and regional feds, three board members are bankers appointed by member banks, three are non-bankers appointed by member banks, and three are non-bankers appointed by the national fed.)  Given the Fed’s “dual mandate,” at least one of the presidential appointments to each regional Fed board would be an official representative of the Department of Labor. Another could be an official representative of the U.S. Treasurer, or the Department of the Treasury.)

The national board of governors "exercising oversight" over regional Feds and their boards is not enough, even if that's in conjunction with it appointing three board members.

That would make 12 instead of 9 members of each regional fed's board. I'd be OK with banks appointing one more Class A member to offset that.

Given the New York Fed's outsized role in the nation's finances, I would say five presidential appointments, not three, would be needed.

The president of each regional Fed would have to be a presidential appointment as well. Having the board of a regional Fed appoint the president is not good enough. I'd be OK with the national board of governors and regional board making nominations, but, this would have to be the president's call. Tim Geithner's role running the New York Fed make clear how important it is for this to be a presidential appointment. An additional restriction might be that nominees by a regional board for the presidency could not be an employee of a bank that was a member of that regional Fed

Second, the stipulation of the Department of Labor, above? That should apply to the national Fed's board of governors, too. And, given that the Treasury actually prints our banknotes, as well as pressing our coins, the Treasurer of the United States should sit as an ex official member of the board of governors too. If the current Fed wanted an expansion from seven to nine governors rather than the replacement of two, that's fine.

Given that the national board of governors is already short two members, I think presidential appointment powers for the two national members would of course go along with ex officio status, and that the appointment of regional presidents, with a nomination process, should not be subject to Congressional approval.

Note: None of these reforms would preclude something like 49 other states creating their own versions of the Bank of North Dakota. (Note: By that bank's enabling statutes, and even more by how it was treated by others lending institutions at its creation, its powers are actually fairly limited; progressives, Greens, left-liberals should not think that such an institution is a panacea for communitarian ideas, though it may well help. It is NOT a statewide credit union, though there would be nothing legally stopping other states from doing that with their state banks, if they formed them.)

That then said, communitarianism, especially in its more ardent versions, is probably another area where I'm not fully comfortable being in the Green Party saddle. And, despite that he blocked me on Twitter, I can still be mensch enough to say that a lot of Greens need to read or listen to Doug Henwood, or someone similar, to get real left-liberal and beyond understanding of modern America's financial system and what's realistic and what's not on changes to it. Trying to do ever more things by barter, or communitarian banking, or similar?

First, that's not realistic. And, related, what do you do if you think you got ripped off on a barter? Revert to the law of the jungle or similar? If you're a nonviolent Green, do you tighten your circle of trust ever more? Per this link, many communitarian groups wind up failing, above all because of the amount of hard work involved. Also, at a small-scale level like that, there's less room for error, and less room for modern social welfare. That's why, contra an Occupy movement myth, small businesses aren't automatically better than big ones.

Next? Short of a full communitarian community, your local trade association, if it has moved beyond barter to private money, can't have that money "translate" if it's not accepted by central banks, whether it's some "community bucks" or Bitcoin.

And, that's a good thing! It's called "rule of law." I don't want anarchy in the banking system, or in general, whether it's proposed by hardcore libertarians or by anarcho-Greens. Pass.

Second, IMO, in the more extreme forms, that's a communitarian parallel to states' rights stances; what it really does in the end is further weaken "the mystic chords of memory" from the peroration of Lincoln's First Inaugural Address. I no more want a Republic of Greater Portlandia than I do a Republic of Texas. And, related to that, as Thomas Frank pointed out on the original Occupy movement, a communitarian focus runs the risk of withdrawal from national issues that may not be of community concern. (I know that some — even if nowhere near all — people who might like a Republic of Greater Portlandia knows the city, and definitely the state of Oregon, have criminal justice problems based on the high degree of whiteness.)

One of those "someone similar" folks to Doug Henwood would be Michael Hudson. He's a left-liberal, but, unlike Henwood (self-putatively), I don't think he's a "beyond." Anyway, Hudson, in this great piece about how he is a heterodox economist and more, notes that in a monetized (that's as in money-based, not barter-based, or similar) society (but not necessarily a capitalist one (scroll down to near the bottom, if you don't understand that "banking and finance" aren't the same as "capitalism") somebody has to provide credit. Better the government, especially if we pull the influence of private bankers over regional Feds, than private bankers.

(Hudson is more critical of identity politics than I am, but that's in part because, as he notes, leadership of specific identity politics groups within the Democratic Party has been taken over by neoliberals. I'm not sure how critical he is of the general idea of identity politics, but I fear he might be a big Henwoodian in that way, trying to reduce everything to classism. After all, his father was a Trotskyite.)

I'm not expecting people who comment on the current banking system of the United States to have the same level of understanding as a potential nominee to a regional Fed board membership. I am "expecting" you to have more knowledge of how banking works than did Andrew Jackson. If not, I respectfully suggest you follow Wittgenstein and stop talking; please don't have some of the same unrealistic ideas as the Zuccotti Park Occupy folks did on finance and economic issues in general.

As for antipathy to banks, not just their modern American abominations in Manhattan? Banking, including transnational banking, precedes modern capitalism. After all, the likes of the Medici and the Fuggers were in place more than 500 years ago, serving a system that was still basically mercantile and only proto-capitalist. Beyond that, the Soviet Union had a central bank. A banking and finance system is NOT the same as capitalism. And as for "fiat currency," lest any Greens are going down THAT libertarian rabbit hole? The Chinese were printing paper money 1,000 years ago.

Getting more into the weeds, your local bank, even if it's only a state bank and not a national bank, needs somewhere to both invest some of its reserves and have a backup source of liquidity. Even a credit union needs some of that; as Henwood had no problem in pointing out to the Occupy kiddos, credit unions are not autarkic investment and savings institutions.

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Sidebar: Shock me that at least one Green peddling this nuttery (FB status is posting as "public," so I'm violating no confidences) is a 9/11 "truther." Said person, per my normal practice, is already blocked.

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