The Federal Reserve Bank has been exhaustively examined on Daily Kos. Much of the commentary has been a cacophony railing against the greed that pervades the decisions made by the Federal Open Market Committee(FOMC) or the Board of Governors. Considering the "bail out" of Bear Sterns and the new policy that allows "venerable" investment banks to surreptitiously borrow money at the Fed's discount window, the harsh criticism is warranted. Many diarists have called for the complete dismantling of the Fed. This precipitous call for action, however, ignores the fact the that Fed can be easily changed without dismantling it. Fortunately, Obama may have the opportunity to make that change.
Twelve members comprise the FOMC, and seven of those members are from the Board of Governors. The Governors are appointed by the president and approved by the senate. Thus the senate has the ability to greatly shape the Federal Reserve. The Democrats have seized this power, refusing to confirm any of Bush's additionally appointments to the Board of Governors. This has left two of the seats unfilled and will give the next president the opportunity to almost wholly remake the composition of the Board of Governors, and people are taking notice of this crafty political maneuvering.
This weeks Economist laments the politicization of the Fed, fearing what may happen if Democrats get the chance to reshape the bank.
Democrats want to wait until after November's election so that a new president can, as one senator put it, "remake the Fed" by appointing a clutch of new people at once. That is reckless on several counts.
And the recklessness:
In the short term, the central bank will be starved of talent and leadership at an extremely tricky time.
And of course, GWB's appointees must be bursting with talent, just like Bernanke. As the article continues, the Economist's reasoning becomes even more specious.
The real danger, however, lies further ahead. Mr Bernanke's term as Fed chairman expires in 2010. With lots of governors to appoint at once, and the prospect of a new chairman within two years, the next president will have unprecedented power to reshape the Fed. Governors are appointed for overlapping 14-year terms precisely to avoid this concentration of power.
This is precisely what neo-liberal economists are afraid of: a Democratically controlled government having the ability to pack the Fed.
Not only may Obama have the chance to change the SCOTUS, he will also have the unprecedented opportunity to completely alter the make-up of the Fed. This is truly historic and could have implications for generations to come. We may yet have a Federal bank that works for the people and not the bankers.