The Fed's politics of anti-politics

Fed chief Ben Bernancke is the guy who kept banks afloat after being part of the cozy cabal that almost shipwrecked the entire financial system through its self-serving ideological blindness. He apparently did enough things right amidst the crisis so that we have a mere 16% effective unemployment rate nationally rather than a 36% one.

‘It could have been so much worse’ is not much consolation to people who are out of work, losing their homes or facing bankruptcy today. Nonetheless, the fix is in to return this acolyte of Greenspanism to the creepy Temple of Ramses on C Street [below].

Rewarding Bernancke with another term is like giving the guy who got drunk and almost but not quite totaled your car his own permanent copy of your keys.

What is the Federal Reserve supposed to do, according to itself?

1. Conduct the nation’s monetary policy . . . in pursuit of maximum employment, stable prices and moderate long-term interest rates.

2. Supervise and regulate banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.

3. Maintain stability of the financial system and contain systemic risk that may arise in financial markets.

4. Provide financial services to depository institutions, the U.S. government and foreign official institutions.

Therefore, Bernancke got one point out of four: he did in fact provide banks with certain ‘financial services’, i.e. huge amounts of money. Everything else was a flop, which would earn him about a D+ in one of his Princeton classes.

I readily confess to being quite ignorant about the implications of various proposals floated by such disparate figures as liberal Democrat Alan Grayson and libertarian Republican Ron Paul on restructuring the Fed and other financial regulatory agencies. But the topic should be as much a part of our political discourse as health financing reform.

Instead, we are being treated to deep bowing from those few reporters ever heard on the topic, whose chronicles are full of the usual banker-promoted clichés about the importance of central bank ‘independence’ (from us, not from them) and the need not to undermine banker ‘creativity’ and ‘financial product innovations’.

Crusty old Paul Volcker, who once had Bernancke’s job, popped that balloon last week when he said that the only ‘innovation’ of any value that bankers had come up in two decades was ATM machines.

Central banks are supposed to guard against politically-motivated inflationary manipulation of the money supply by politicians eager to get reelected. We’ve been convinced that this requires military-style hyper-secrecy about the Fed’s activities (it has less oversight than the CIA) as well as control of far too much of the Fed’s business by bankers it is supposed to be regulating.

The debacle we continue to live through should be enough to explode the notion that these professional Scrooge McDuck poobahs are some sort of ethereal wraiths floating above the political fray. They’ve screwed up so badly that we should get a chance to review and rethink the whole failed system. However, I’m not holding my breath.