Saturday, November 28, 2009

Fear Factor

The attempts to short-circuit a basic level of openness and accountability are getting increasingly frantic now. Note the specious claim about the apocalyptic consequences of letting the public see behind the curtain, which only makes you wonder what they're so desperate to keep secret. If the appeal to fear doesn't seem familiar, how about this:

"The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis."

I half-expected something about how other intelligence agencies also got it wrong. And some unintended hilarity:

[The proposed audit] would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation.

Yes, we wouldn't want to undermine the overflowing confidence and trust the public has in the Fed right now.

For a great explanation of what's at stake, this William Greider article from a few months ago is one of the best I've read. The fundamental issue here isn't monetary policy. It's really about democracy and individual economic freedom.

The GAO can't get in there fast enough.


Anonymous Anonymous said...

i think it would be helpful to know what, exactly, you want the outcome of a gao audit to be.

there's all this talk about auditing the fed -- but really all it will show is that the fed has provided loans against dubious collateral.

so what do you want to see happen?

11/28/2009 11:50 AM  
Anonymous Anonymous said...

If you read the article linked to, it does provide a pretty good detail of what should, as well as needs, to be done. I don't know if that is what the author is suggesting and will let him speak for himself.

"Congress also needs a "council of public elders"--a rotating board of outside advisers drawn from diverse interests and empowered to speak their minds in public. They could second-guess the makers of monetary policy but also Congress. These might include retired pols, labor leaders, academics and state governors--preferably people whose thinking is no longer defined by party politics or personal ambitions. The public could nominate representatives too. No financial wizards need apply.

A revived Congress armed with this kind of experience would be better equipped to enact substantive law rather than simply turning problems over to regulatory agencies with hollow laws that are merely hortatory suggestions. Reordering the financial system and the economy will require hard rules--classic laws of "Thou shalt" and "Thou shalt not" that command different behavior from certain private interests and prohibit what has proved reckless and destructive. If "too big to fail" is the problem, don't leave it to private negotiations between banks and the Federal Reserve. Restore anti-monopoly laws and make big banks get smaller. If the financial system's risky innovations are too complicated for bank examiners to understand, then those innovations should probably be illegal."

It is a great read, the whole thing is worth checking out.

11/28/2009 12:34 PM  
Blogger Glen Tomkins said...

We've decided that democracy and a republic don't work

The whole idea of a republic is that what government does should be public business, the people's business, conducted in public by the people's democratically chosen representatives. Other theories, such as monarchy or aristocracy, have governance that, at least in theory, is for the welfare of the people, but is not government of and by the people. The people are treated like passengers on a cruise ship, in that the captain (king) and/or crew (nobility) run the ship, and the passengers have no say in that governance, however much the whole point of the cruise is to serve them. These other theories rest on the assumption that the people, God bless 'em, just aren't competent to run anything, and are best served if others take direction of their affairs.

We still have the outward forms of a democratic republic, but our belief system has "evolved" to the point that those outward forms no longer reflect what we believe about how government can and should work. We think the people are at best passengers. Yes, goverment should be run in their interests, but it would be a true disaster in practical terms to let them have any say in how the ship is run.

The Fed, the whole idea of the Fed, is just one manifestation of this change in beliefs. The whole point of the Fed, the reason it was set up as an independent agency, and the reason that it has been able to preserve that independence from public oversight, despite demanding ever greater power over the economy, and the resources behind that power, is that, of course, our representatives in Congress have enough sense to realize that they should not, could not without disaster, direct the economy themselves, in public deliberation, but that they rather must defer to a body of economic aristocrats to make those decisions behind closed doors. We have grown into the habit of thinking of the people, and their representatives, as the inmates, and nobody wants the inmates running the asylum. Nobody thinks that the nurses and doctors should be in any way accountable to the inmates, that the patient records and treatment plans should be a matter of discussion and decision by the patients. (Well, actually, you are more likely to find people these days willing to go much further in such a democratic governance of a psych ward than in the public governance of our country. Perhaps we need a new analogy, extreme enough to fit the times.)

Public disclosure of what the Fed's been up to may seem, on the face of it, if you look at this in terms of how our government is supposed to work, to be a no-brainer, an obvious necessity. But you have to recognize that theory and practice have diverged so much in our governance, that opening up that particular door to the public light of day would be comparable to calling the Estates General to resolve problems the monarchy couldn't, after almost two centuries since public governance was last tried in this kingdom. People could lose their heads.

11/29/2009 12:06 PM  
Anonymous Anonymous said...

I believe that we will see term limits on Congressional seats before we see a public airing of the Fed's dirty laundry.

Frankly, I'd like to see both but I think that in my lifetime, we will see neither.

11/30/2009 5:53 AM  
Anonymous Anonymous said...

Not to worry, Goldman Sachs employees are now arming themselves against those of us who would love to rise up.

"I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter” it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names."

Civil war, anyone? Why go to Afghanistan when we can have war right here at home?

12/01/2009 10:53 AM  
Anonymous Anonymous said...

Of course it will undermine the confidence the public has in the Fed. A big percentage of Americans have no idea what the "Fed" really is, and think it is some part of the government - when they find out that it is in fact a collection of private banks, and that they have manipulated and debased our currency over the last 90+ years, heads will roll.

This is what the Fed (rightfully) fears.

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