Fed Power: How Finance Wins

Fed Power: How Finance Wins

Fed Power: How Finance Wins

Fed Power: How Finance Wins

Synopsis

The Federal Reserve is the most powerful central bank in the world. Without its central bank, America would be subject to devastating fluctuations in currency value and chronic economic instability. To stabilize the economy, the Fed adjusts interest rates and intervenes in the economy more directly when appropriate. According to most Fed observers, it as an impartial referee exercising its independence free from political interference in order to advance the best interests of America. Its actions during the Great Recession were heroic, saving the American and indeed the world economy from a far worse fate. Wrong. Lawrence Jacobs and Desmond King's Fed Power is the first sustained examination of the Fed as a potent political institution that systematically provides concealed advantages to a privileged few. The authors trace the Fed's historic development from the fiery tug-of-war over monetary policy during the 19th century to its current position as the most important institution in the American economy, possessing unparalleled capacity and autonomy to intervene in private markets. Yet despite its power and resources, it was asleep at the wheel when the crisis hit. After it hit, the Fed acted swiftly to contain the crisis, but in the process exposed its real preferences. Jacobs and King dissect how the Fed's programs during the Great Recession funneled enormous sums to a select few in the finance industry while leaving Main Street businesses adrift and millions of homeowners underwater. Far from serving the national interest, the Fed increased economic inequality in America and further enriched the "one percent." America is heading into the next financial crisis without an effective central bank. 'End the Fed' is a popular slogan that not only voices the people's displeasure with the Fed's favoritism, but also speaks to a national feeling of the Fed's illegitimacy. Of course, we need a powerful and capable central bank - getting rid of it is a roadmap to mass unemployment and impoverishment. Jacobs and King present an energetic reform agenda to build the sort of accountable central bank that other countries, like Canada, already possess and which can help ensure that the economy remains stable and prosperous for all and not just a few.

Excerpt

Imagine this split screen in early 2009 shortly after the inauguration of President Barack Obama. One screen: fiery debate in Congress and in the media over passing a stimulus package. It passes, but only after three Senate Republicans cross the aisle and imperil their political futures—one changes political parties.

The other screen: a hush-hush confidential meeting of the Federal Reserve Bank’s top decision-makers to review a joint plan with the Treasury Department to buy up as much as $1 trillion of the $2 trillion in toxic assets that private banks recklessly purchased in the pursuit of profits. How will the Fed and Treasury pull off a rescue of imprudent banks while turning a cold shoulder to millions of Americans who are losing their jobs and homes? The Fed’s chair, Ben Bernanke, confides that the “political strategy is to provide an overall structure with … not a great deal of detail, with the idea … [of] creat[ing] some buy-in on the political side. It’s like selling a car: Only when the customer is sold on the leather seats do you actually reveal the price.”

Two massive government commitments and entirely different styles of governance. One is the familiar public process of open debate and democratically elected officials deciding; the other is secretive and controlled by mostly unknown figures with careers . . .

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