Reining in the Gods of the Fed

Here's a story that reads like the script of an old B-grade monster movie - and it would be comic, were it not so serious. The monster is named "The Fed," a hydra-headed creature with enormous and destructive power, which it exercises from within the misty confines of a marble cavern that is unapproachable by commoners.

In real life, the Fed is the Federal Reserve - a private, for-profit bank that is run by and mostly for other big bankers. But it's also its own, secretive branch of our national government. The Fed creates its own money (check your bills - they're called Federal Reserve notes), it sets our interest rates, it regulates Wall Street and (as we've recently learned the hard way) it has sweeping power to bail out Wall Street.

The Fed operates largely beyond the purview of Congress or even the White House, and both the media and the public are essentially shut out from scrutinizing its financial machinations. The banking gods who dwell within the Fed's temple are said to have knowledge, even wisdom, that the rest of us cannot fathom, so the Powers That Be tell us that these deities must be left alone to make their decisions and work their wonders.

But, wait - aren't these the same omniscient gods, including Alan Greenspan and Ben Bernanke, that failed to see - much less forestall - the looming financial disaster created by Wall Street gamblers who used people's homes as their personal gambling chips during the past decade? Yes, indeed, those are the gods - the very ones who were supposed to be monitoring and regulating the gamblers to keep them from crashing our financial system and wrecking America's real economy.

Where were these all-knowing ones when we needed them? The blissful Bernanke, who heads the Fed, now claims that the crash of '08 happened because he and other gods did not have enough regulatory clout to stop it.

"Give us more power," is Bernanke's current demand to Congress!

But, wait - as New York Times analyst David Leonhardt recently wrote - Fed officials failed to use the substantial power they already had. Why? Because they're too cozy with the quick-fingered Wall Street gamblers they "regulate," so they simply refused to see (or believe) clear signs that the whole system would topple as housing prices headed over the cliff.

While Bernanke is a very smart guy, he was soaked in the stupid conventional wisdom of the day, which was that housing prices only go up. In 2005, he dismissed non-conformist critics of the Fed's inaction by flatly declaring, "We've never had a decline in house prices on a nationwide basis." And, two years later, as prices were plummeting and modest-income families were defaulting on their home payments, he calmly assured us that the gods "do not expect significant spillovers from the subprime market to the rest of the economy."

Our financial rulers were so intoxicated with the fumes of their own omnipotence that they failed abjectly as regulators, as public servants and, most certainly, as gods. The fact that they didn't see what was coming has caused immeasurable pain to millions of families. As Leonhardt asks, "Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?"

Yet, without apologizing for (or even acknowledging) their failure, these denizens of the temple now insist that Congress entrust them with even more authority over our financial well-being.

Many lawmakers, however - led by such knowledgeable and politically diverse Fed critics as Rep. Ron Paul (a libertarian) and Sen. Bernie Sanders (a socialist) - are daring to challenge the gods, proposing steps to rein in their arrogance, aloofness and authority. For more information on this challenge, contact the watchdog group OMB Watch at www.ombwatch.org/fiscal_stewardship.