Tuesday, November 25, 2014

The New York Fed.


                                       Comments due by Dec 3, 2014

This is a must read about the Fed . It does deal with many of the issues that we spoke about during our last class session. 

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WASHINGTON, DC – The US Federal Reserve System is the world’s most important central bank. Its decisions about interest rates and financial regulation reverberate through global markets and affect millions of lives. Yet its governance structure is of another age – antiquated, increasingly problematic, and urgently in need of sensible reform.
The Fed made major mistakes in the run-up to the global economic crisis of 2007-08, most notably by adopting a lax approach to the supervision of key financial institutions, and by allowing some very large banks to become extremely fragile. In one of the great ironies of modern American politics, the post-crisis Dodd-Frank financial reforms of 2010 actually gave more power to the Fed, mostly because other US regulatory agencies were regarded as having done a worse job.
In view of the Fed’s decidedly mixed track record since the Dodd-Frank reforms, some officials evidently regarded that default by Congress as a mandate to conduct business as usual. Recent press reports have highlighted lapses in supervision, particularly in and around the Federal Reserve Bank of New York – one of 12 regional banks in the Fed System, which also has a Board of Governors in Washington, DC.
This regional structure is the result of legislative compromise in 1913, when the Fed was created, and again in the mid-1930s, when its governance was last overhauled. Whereas members of the Fed’s Washington-based Board of Governors are nominated by the US president, subject to Senate confirmation, the presidents of the regional Federal Reserve banks are appointed by local boards.
In reality, the New York Fed has always had disproportionate sway; not all regional Fed presidents are created equal. The president of the New York Fed is a permanent voting member and vice chairman of the Federal Open Market Committee, which sets interest rates, whereas other regional Fed presidents are voting members only on a rotating basis.
The New York Fed also has a particularly important role in bank supervision – most of America’s “too big to fail” banks are located in its jurisdiction (and most global banks have a presence there). And the New York Fed has long been the Fed System’s eyes and ears on Wall Street.
Or perhaps it has become the other way around. At least over the past decade, senior New York Fed officials have consistently sided with the interests of very large banks. (To be clear, I also know many Fed officials who are outstanding public servants). Though Wall Street interests have long been well represented on the board of the New York Fed, under Timothy Geithner, its president from 2003 to 2009, the big players became even more powerful – with some rather unfortunate consequences for the rest of us.
In his recent memoir, Stress Test, Geithner says, “I basically restored the New York Fed board to its historic roots as an elite roster of the local financial establishment.” His choices included Dick Fuld, CEO of Lehman Brothers, which failed spectacularly in September 2008, and Stephen Friedman, a Goldman Sachs board member, who resigned as chair of the New York Fed’s board after being accused of inappropriately trading Goldman stock during the financial crisis. Geithner also established a tangled web of connections between the New York Fed and JPMorgan Chase, some of which linger to this day.
Some senior Fed officials become angry when pressed about this reality. But the Fed’s legitimacy – and its ability to make sensible policy – is not boosted by having major banks represented, directly or indirectly, on a board that chooses and oversees a key policymaker.
Now, finally, US politicians on both the left and the right are focusing their attention on a long-overdue reform of the Fed’s governance. One important proposal comes from Senator Jack Reed, a Democrat from Rhode Island, who proposes, quite reasonably, that the president of the New York Fed should be nominated by the president and confirmed by the Senate, just like members of the Board of Governors – or any other important economic policymaker. The president of the New York Fed would also be required to testify before Congress on a regular basis.
The Fed’s defenders will respond that it would be dangerous to alter the status quo. But it is the Fed’s current governance that has become dangerous. Senators Elizabeth Warren of Massachusetts and Joe Manchin of West Virginia argue, entirely convincingly, that the composition of the Fed’s Board of Governors should be tilted away from people who are connected with big Wall Street firms.
Meanwhile, House Republicans are preparing their own Fed governance reforms, which would be even more radical – and would likely constrain monetary policy unwisely.
In any case, it is time for change at the Fed. And, as is often the case with finance, the place to start is New York.

  • 13 comments:

    Alexa Lauro said...

    The duties of the Federal Reserve have expanded over the years. They are in charge of conducting the nation’s monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system and providing financial services to depository institutions. This article disagrees with the Federal Reserves expanding power and states that the Federal Reserve is in need of a reform. Timothy Geither, President of the New York Fed from 2003-2009, had plenty of Wall Street on board making the powerful even more powerful. The Fed needs to change and quickly.

    Matthew Kurdewan said...

    This article talks about the Fed and how some of its structure is run. The article discusses how the Fed needs to be reformed especially the New York Fed the most powerful section. In recent years the decisions by the Fed have cause many people to wonder if it is time for a change. One change proposed is to alter the way the head of the New York Fed is put into power and that the position make regular testimony before Congress. There are also other changes that are being proposed but the one thing that is for certain is that the Fed is on its way to being changed. We just don't know in what ways just yet.

    Vinona Rugova said...

    Being that the Federal Reserve in New York is the main one, it should be better reformed. They are operating in a way that could be more efficient. The government is to lax on the way they treat the officials in the reserve. It has been seen that supervisions has been not up to par by the New York Fed. The head of the New York Fed should be chosen a different way, that is one of the propositions, that seems like it can help.

    Colleen Carroll said...

    The Fed being as big and powerful as it is needs to be changed from time to time. The federal reserve has many responsibilities covering the whole nations banking and financial requirements. The main Fed is located in New York, if change begun at this maybe we could set a higher standard than we were previously placed.

    Stamyr R said...

    The article informs readers about the mistakes the federal reserve has been making in response to the 2007-2008 recession America has experienced. The Feds have been failing to keep national banks strong such as in 2010. I agree in this speaker in regards to the federal reserve needing some changes, and beginning in New York seems like an effective way to do so being that New York has consistently been apart of the federal reserve.

    Anonymous said...

    The fed controls monetary policy in the United States. The means money supply or selling government securities to increase or decrease the flow of money. The structure of the fed has grown and become more powerful. The feds power increasing could be a problem because now congress wants to add changes to it. Its interesting how it says that not al regional fed presidents are created equal. New York fed is the most powerful and makes most of the decisions including interest rates. I don't know how things will change with congress and the fed, but it will influence everyone.

    Anonymous said...

    The 6th post is Bryan Rivers

    Anonymous said...

    This article talks mainly about the functions of the Federal Reserve. These functions have changed over the years but the Fed has been more and more influential throughout the years. The article discusses the need for reform of the Federal Reserve. This is probably for the better to make sure that it does not have too much power and control.
    -Nick Bellantese

    Ryan Aquino said...

    This article discusses the issue with the Federal Reserve and how reforms must be made. With reforms necessary now more than ever, especially in New York, it is being debated as to whether or not changes should be made in the Federal Reserve. Their expansion of power is another factor that contributes into the idea that changes must be made. What will happen in the Federal Reserve is unknown, but it is assured that change is wanted and needed.

    Brittany King said...

    This article discusses the US Federal Reserve System and its mistakes in responding to the recession throughout the period of 2007-2008. Being that the Federal Reserve is to act as a leader for all other central banks, allowing large banks to become very fragile during such a desperate time shows a need for change. Additionally this article discusses the power of the New York Fed. It states how the New York Fed is the eyes and ears of Wall Street. With this being held true, I agree with this article in regards that the Federal Reserve needs reforming and beginning with the New York Fed would be an effective start.

    Nick Leader said...

    This article talks about the Federal Reserve and how it has been running over the years. I agree with author of the article stating how the Federal Reserve should be reformed starting wight he New York Federal Reserve. The Federal reserve holds too much power. The New York Federal Reserve holds the most power and that needs to be changed.

    Anonymous said...

    This article discusses the federal reserve and the power they have; specifically the New York reserve is very powerful because they are always elected to be in the district. The decisions that the feds make have a huge impact on our society, which is why people get upset over who is elected to be apart of the 12 districts.

    -Marissa Cotroneo

    Doris Da Silva said...

    The Federal Reserve needs a change to perform more efficiently; why not start with the New York Fed since it is the most powerful. One important proposal is that the president of the New York Fed should be nominated by the president and confirmed by the senate. All we know is that there are proposals awaiting, whether or not it happens only time will tell.