Pharaoh, Step Down

Resentment against the Federal Reserve used to be the purview of oddballs like the Lyndon LaRouche sect while most of the rest of us had only a vague idea of what went on in that big marble building. We thought they had something to do with printing money since the capital letter on the dollar bill told you which of the ten regional Feds had produced it.

But financial chaos has unraveled all that blissful ignorance and undermined the Fed’s jealous independence and its demand for quasi-military secrecy. The long Greenspan era—in which the Ayn Rand disciple was treated by Congress as a visiting potentate for his oracular monthly pronouncements about the state of all things economical—has morphed into a populist revolt against the unelected club of experts.

The outrage is fed by teabagger paranoia against everything, and it won’t help matters in the long run if the Fed’s technical powers are cropped and monetary policy starts to be manipulated by politicians facing re-election. But the Fed’s ignominious failure to fulfill its regulatory role over the financial system and its insistence on keeping its doings cloaked in vague generalities as it shovels trillions into the failing banks is forcing Ben Bernancke to defend his role like never before. And a good thing, too.

The Fed’s independence in handling the creation and destruction of money was awarded to it by Congress, and Congress can just as easily take it away. There’s nothing in the Constitution that says it should have these powers.

It’s more or less accepted wisdom now that the Fed under Bernancke has done a good job of preventing the depression that loomed last fall as Bear Stearns, Lehman Brothers and AIG toppled like falling dominoes. But given the extent of the economic pain, it isn’t immediately clear to those suffering that things would have been worse without huge handoffs of public funds to the guys responsible for the whole mess. Bernancke & Co. are going to have to figure out ways to explain it and themselves, and they can forget the turgid prose of the typical Fed news release—it won’t fly.

Too bad it isn’t Greenspan himself who has to defend the indefensible. But then there’s Timothy Geithner, a full partner in the Greenspan catastrophe during the former’s tenure at the Fed’s all-important New York office. It won’t help Bernancke to retain Fed powers and privileges to be saddled with someone like Geithner at Treasury reminding everyone that none of the main guilty parties have paid a price for their failure.

The smaller and more politically vulnerable agencies, like the Comptroller of the Currency, the FDIC and the laughably inept SEC—that never noticed Bernie Madoff was stealing $60 billion—had much less clout to intervene in the overheated financial markets while the good times rolled. It is the Fed’s very supra-political independence that makes its inaction unforgivable and puts that independence in congressional sights.

By stepping up and acting boldly a year ago, the Fed under Bernancke may have avoided the déluge threatening us. That success may have required funneling billions of dollars in free cash to investment bankers, but the Fed no longer has the privilege of refusing to explain why and showing us all the fine print. Congress will now see to that, and the coalition stretches from libertarian Ron Paul to liberal darling and iconoclast, Alan Grayson, co-sponsors of the one of the bills to give the Fed a nice caning.

Banks once were perceived as part of the normal landscape of life from big city to rural county seat. Bankers made nice salaries, but you could see them going to work and sitting around with their calculators, reviewing mortgage applications and financing businesses.

Now, however, people perceive that the financial economy has grown into a vehicle for the creation of vast fortunes not necessarily linked to any productive activity. Instead, they see bankers financing job destruction and giddily shipping manufacturing jobs overseas while making mincemeat of companies that communities relied upon and once thought would last forever.

A lot of disparate things—teabagging, banker hatred, hysteria over deficits, resentment of insurance companies—are fueled by the fear and uncertainty engendered by the steady disappearance of our manufacturing base and the employment security it once promised. It’s hard to see where decent jobs for future generations will come from, and meanwhile the sense that the privileged classes have feathered their own nests at our expense deepens.

One possible way for Obama to tap this fury rather than become its target would be to put as much energy into regulatory reform as he has into healthcare. Why not let McConnell and Boehner dig in their heels and defend the bankers for all to see?