End the Fed?
Posted on December 2, 2011
Earlier this week, Bloomberg Business reported:
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing. The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse. A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
These are the kinds of revelations that drive politicians on both sides of the aisle completely bonkers. How could the Fed have so much power? How could they give so much money without the consent of Congress? How can they get away with this kind of bailout?
Republicans have taken an increasingly antagonistic view of Ben Bernanke. Ron Paul, of course, is channeling his internal Andrew Jackson, and wants to get rid of the whole thing. Newt Gingrich wants Bernanke fired. Even Mitt Romney has spoken harshly of the Fed Chairman.
All of this rhetoric might be appealing to the Republican base, but from a policy perspective (if you care about the health of the economy, homeownership and all of the rest), it is completely insane.
Bernanke did what he had to do to save our economy. If he had gone to the Congress or the White House to get permission, we would have had a complete collapse of our financial sector. In a crisis, you don’t ask for permission to act. You ask for forgiveness after you are done doing what has to be done.
To those who say we should end the Fed because Bernanke didn’t use the proper procedures (even though he clearly has the power to do what he had to do, which was protect the value of the currency), I say sometimes the ends justify the means.
In a crisis, you must move quickly. And sometime, you must move against the will of the Congress, which these days is in such a state of paralysis, that asking it to do even simple things, like keep the government open, is a bit of a stretch.
Bernanke will go down in history as a hero in the middle of this crisis. You don’t have to like him, but you do have to respect the fact that when the going got tough, he did what he had to do to keep the system from collapsing.
The recent news that the unemployment rate is now down to 8.6 percent is thanks mostly to what the Fed Chairman has been doing. Obama deserves no credit. End the Fed? Are you kidding me?