Obama's Plan to Prevent Financial Meltdown
Turning the Federal Reserve into a Financial Monster
Jun 19, 2009
The Federal Reserve System, more commonly called Federal Reserve or simply “The Fed”, has been in action since 1913. We have Woodrow Wilson to thank for this public and yet private banking system, which is composed of 5 separate parts. The Federal Reserve has attracted its share of criticism over the years, and President Obama has yet again put “The Fed” in the line of fire. His plan of action to prevent another collapse of the financial world might very well turn the Federal Reserve into a financial monster unlike anything seen to date.
The Five Components of the Federal Reserve System
Starting at the top of the food chain is the Board of Governors of the Federal Reserve System. They are located in the headquarters in Washington, DC, and are appointed by the president. Next in line is the Federal Open Market Committee, and is followed by the twelve regional banks that are the fiscal agents of the US Treasury. Each of these banks has a board of directors comprised of nine members. While these three components are rather clear cut, the last two are hazier in clarity. The fourth component is listed at numerous other private institutions that have the required amount of non-transferable stock in their regional Federal Reserve. Lastly, there are random advisory councils.
The Federal Reserve under Fire
This is not the first time that the Federal Reserve has come under public attack. Milton Friedman and Anna Schwartz have asserted that if the Federal Reserve had not existed that the bank failures of 1931 – 1933 would not have occurred. He also said that he would have preferred that the system be scrapped altogether rather than to attempt reform. He adamantly claimed the Federal Reserve has failed in what the original 1913 bill had intended, and was the cause of the Great Depression (wikipedia).
Aside from what past economists have said, as Mr. Friedman’s economic theories were based on a past economy, the Federal Reserve is heavily criticized because it is unable to control inflation, which is one of its mandated duties. A congressman, Dennis Kucinich, has also raised the question of why the Fed can issue currency. He also brought the topic of the Fed being independent into question, stating that they should be “accountable” rather than independent.
So why should the American people hand the power of superior financial regulation to an agency having trouble with its current duties? Handing over that type of power to the Federal Reserve would make it difficult to keep the agency on par. Pennsylvania’s Paul Kanjorski has been quoted with saying “What if the representatives of the people and the president want a certain action and it’s not taken? You can’t fire the chairman of the Federal Reserve.”
Obama’s Opposition
There is a voice which is adamantly speaking out against the Fed having this type of power. Not wishing to see the agency become a financial tyrant, Senator Christopher Dodd has argued for an alternate action. Being chairman of the Banking Committee, Dodd has the advantage of experience to back his proposal.
Dodd has advocated that instead of giving the Fed even more power, he suggests taking some away. The plan would strip the Fed of its regulator role, leaving it to focus on its existing duties of setting monetary policy and “lender or last resort”. A new consolidated bank regulator would be formed to assume the Fed’s previous role.
Many hope Dodd’s proposal will see the President’s signature, rather than his own proposal. The Federal Reserve is not ready for any additional duties and would benefit from have some responsibilities lifted from their shoulders. This way all duties will have priority, whether to this new bank regulator or the Federal Reserve (Yahoo News).
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