'Foxes guard the henhouse’: End Wall Street regulation of the Fed - Bernie Sanders

Democratic U.S. presidential candidate U.S. Senator Bernie Sanders. © Brian Snyder
Bernie Sanders, a self-described democratic socialist, has called on the US government to audit the Federal Reserve, prevent big bank executives from serving on its boards and force it to act with more transparency and in favor of small businesses.

The independent Vermont senator and Democratic presidential candidate laid out his plans for the US central bank in an Op-Ed in the New York Times. The contribution comes a week after Chair Janet Yellen announced that the Fed would raise a key interest rate from nearly zero to 0.25 percent ‒ the first rate hike in nearly a decade.

It was a move that Sanders decried at the time, and he began his Op-Ed once again slamming the announcement.

“Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages,” Sanders wrote. “As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort ‒ not to fight phantom inflation.”

The unemployment rate remained at 5 percent in November, according to the Bureau of Labor Statistics.

Most of Sanders’ piece focused on how to “fundamentally restructure the Fed’s governance system” to eliminate conflicts of interest and to refocus on its primary mission of serving all Americans, not just Wall Street bankers.

To start, the Democratic presidential hopeful recommended that board members for the regional Federal Reserve Banks be nominated by the president and approved by the Senate, with banking industry executives no longer eligible for any positions that are in charge of regulating financial institutions.

“If I were elected president, the foxes would no longer guard the henhouse,“ Sanders wrote, noting that, in 2016, “four of the 12 presidents at the regional Federal Reserve Banks will be former executives from one firm: Goldman Sachs.”

He also suggested that regional board positions “should instead include representatives from all walks of life ‒ including labor, consumers, homeowners, urban residents, farmers and small businesses.”

Sanders also suggested ways to change how the commercial banks, which the Fed regulates, do business, including prohibiting them from “gambling” with their customers’ deposits. He recommended that the central bank stop providing incentives to banks to stock excess reserves at the Fed ‒ “reserves that have grown to an unprecedented $2.4 trillion” since the Fed began the practice in 2008, he wrote ‒ instead of reinvesting that money in the economy.

The third part of Sanders’ plan is to force large banks to helping the average American as a condition of receiving financial assistance from the Fed. This help includes increasing lending to creditworthy small businesses and consumers, reducing credit card interest rates and fees, and providing help to underwater and struggling homeowners.

Finally, Sanders called on the Fed to increase its transparency and for Congress to require annual audits of the central bank. Currently, full and unredacted transcripts of the Federal Open Market Committee are released within five years of meetings. He wrote that they should be released to the public within six months.

“If we had made this reform in 2004, the American people would have learned about the housing bubble well in advance of the financial crisis,” Sanders wrote.

Since 2010, when Sanders inserted an amendment in the Dodd-Frank Wall Street Reform and Consumer Protection Act that called for the auditing of the Fed’s emergency lending during the financial crisis, the Vermont senator has increasingly seen the need for more oversight of the central bank.

“We need to go further and require the Government Accountability Office to conduct a full and independent audit of the Fed each and every year,” Sanders wrote, adding, “We must reinstate Glass-Steagall and break up the too-big-to-fail financial institutions that threaten our economy.”

Sanders’ position now echoes that of his financial opposites, libertarians Ron and Rand Paul ‒ a former Republican congressman from Texas and a GOP senator from Kentucky who is running for president, respectively.

In October 2013 and again last May, the younger Paul, Rand, threatened to hold up President Barack Obama’s nominees to key Fed postsincluding Yellen to head the central bank ‒ unless the Fed was audited. His father, Ron, has often called for an audit of the Fed, but would prefer to end the Federal Reserve System completely.

While Sanders and the Pauls may be turning the fiscal spectrum into a circle when it comes to the Fed, those in the middle may finally be heeding their calls to fundamentally overhaul the US central bank: Senate Majority Leader Mitch McConnell (R-Kentucky) has scheduled a vote on a bill known as Audit the Fed for January 12, which would authorize the Government Accountability Office to perform full audits of the Federal Reserve System.