This blog has covered a leak to Medley Global Advisors, which had occurred with Federal Open Market Committee (FOMC) information. According to Reuters, the person claiming to be responsible for the leak was a member of the FOMC, Jeffrey Lacker, president of the Federal Reserve Bank of Richmond. He has resigned on April 4, 2017. (He had planned to retire in October 2017.)
That the Fed’s Office of Inspector General did not uncover this information shows again the fraility of an non-independent inspector general. As stated in a previous blog post–
“In addition, the leak situation demonstrates the weak position of the IG. Sadly, the Board’s IG is akin to a toothless tiger.
The Board selects its [Inspector General] IG. The IG is not nominated by the President and approved by the U.S. Senate. Thus, an immediate conflict of interest and lack of independence is created.
Further, the IG submits a budget to the Board for its approval (See Board Annual Report, 2013, page 314 (paragraph 3)). Again, the IG instantly is subservient to the head of the agency. As a result, the IG cannot function.”
To whom great independence is granted, an extreme level of accountability and responsibility is required. The Federal Reserve Board (Board) and the Federal Open Market Committee (FOMC) has failed miserably with managing its service to citizens. Reform of the Board is needed immediately; FOMC transcripts must be released much earlier than five years.
Author’s note: I have covered other aspects of the Board’s inhuman spirit and cruelty in other posts–for example, the now-closed case of Artis v. Greenspan Bernanke Yellen. That this attitude would spill over into its policy work (or inform of its treatment of certain employees at the Board) is thus not surprising, but, at the same time, it is deeply hurtful.
Rightly so, it seems. An article by Matthew Stoller of the Intercept, demonstrating the utter lack of conscience against vulnerable citizens–those suffering unemployment as a result of the Great Recession–shows the corrosive effect of extreme secrecy and a total lack of accountability at the high levels of the Board and the FOMC. The reform proposals being considered must be given immediate attention.
[The current chair of the Board, Janet Yellen, was at the FOMC meetings mentioned in Stoller’s article.]
“I frequently hear of jobs going unfilled because a large number of applicants have difficulty passing basic requirements like drug tests or simply demonstrating the requisite work ethic,” said Dennis Lockhart, a former Citibank executive who ran the Atlanta Federal Reserve Bank. “One contact in the staffing industry told us that during their pretesting process, a majority—actually, 60 percent of applicants—failed to answer ‘0’ to the question of how many days a week it’s acceptable to miss work.”
The room of central bankers then broke into laughter.”
At an April 2011 FOMC meeting, the president of the Richmond Federal Reserve Bank, Jeff Lacker, had the following to say about vulnerable people in West Virginia–within his own jurisdiction–at least he tried to stifle the laughs (although his statements were similarly shallow, and lacked depth–he did not go the unemployment office to speak with the unemployed directly (!)):
In an April meeting that year, Richmond Federal Reserve President Jeff Lacker told participants that “Several firms told us of difficulty finding adequate workers, because they preferred to collect unemployment benefits or can’t pass drug tests.” He reiterated that point in November, saying that in West Virginia he was told by an employment agency that “unquestionably the biggest problem in hiring skilled and unskilled workers was the inability to pass a drug test.”
Lacker’s Federal Reserve district includes West Virginia. In August, he again spoke of “widespread reports about hard drug use, OxyContin and methamphetamine, in Appalachia and other rural parts of our District—in particular, Appalachia.”
Apparently his colleagues responded with laughter again, because he then said “Drug abuse and the hardship involved in unemployment aren’t really laughing matters.” Usage, he noted, isn’t higher than the national norm in West Virginia. “It’s hard to pin this down quantitatively,” he continued, wondering if there was “something meaningful there as a contributor to impediments to labor market functioning.”
Note: The New York Fed published a paper in 2014, which justified the end of extended long-term unemployment benefits. Stoller’s article gives context to the paper’s approach toward the unemployed.
The President and Congress must take action to correct the errors going on at the Board and FOMC that the management there seem unwilling to address with “their friends.”
This paper outlined current issues presented by the current operations of the Federal Reserve Board and the Federal Reserve Banks (collectively, the Fed). The authors present several ideas for thinking about reforms (that would not affect the Fed’s political independence (a long-used diversionary tactic against any reform, see Auerbach, Robert D. (2008), Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, Austin: University of Texas Press.”).
The graphic (below) shows the potential obstinacy the authors are up against with the Fed; persistence is key and absolutely necessary in this case. The Fed is a public agency; it is way past time for the organization to accept it.
I will review topics in the paper that caught my attention in this post. (Again, the full paper is located here.)
While the paper is necessarily technical (especially, the composition of the boards of the Federal Reserve Banks), the observation of the ill effects of the current structure of the Fed is extremely important. The ultimate goal of the Fed must be to work for the entire population of the United States of America.
First, the authors noted that the lack of diversity, in terms of race, gender, and profession, as well as sectoral diversity leads to perspectives of many segments of the population being left out in monetary policy discussion. For example, the paper explained that the effect of monetary policy was not discussed in the following areas:
African Americans suffer disproportionately from labor market downturns and benefit markedly from economic recoveries. However, this issue was little mentioned in the Federal Open Market Committee, or FOMC, meetings.
A focus on inflation, the authors continued, rather than on full employment reflected the make-up of the people in the room–multimillionaire chief executive officers and other major corporate figures. People with this wealth or income have different perspectives than small business owners, debtors, students, middle- and low-income workers, and those seeking credit.
Second, the paper makes note of the need of an independent office of the inspector general. While the Board has an Inspector General, the office is not independent because the office depends on the Board for his or her position as well as for the budget to operate the office. As noted in a previous post—
The Board’s [Inspector General] IG is not truly independent, rather it is an arm of the Board’s Chair. The Board’s Chair appoints the IG. (See Auerbach, Robert D. (2008), Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, Austin: University of Texas Press, pages 113-115 (esp. first full paragraph on page 114).) In addition, the Board funds the operations of the IG (see, for example, Board Annual Report, 2013, page 314 (paragraph 3)).
In addition, that authors mention a recommendation of an audit by the Government Accountability Office, or GAO. It is unclear what type of audit the authors are seeking–financial or performance. It seems to be a mixture of the two. But performance audits must be carefully monitored and examined. I have discussed the weakness of the performance audit previously in the blog.
Third, the authors briefly discuss the Board’s semiannual Monetary Policy Report. Presently, the MPR is mostly historical (previous six-month period) at the time it is distributed to members of Congress. The MPR tends to be wordy, filled with distracting graphical material, and difficult to discern the points the Board is seeking to present. I think a more focused and clear report is necessary for the Board to fulfill its obligations to the public.
The Federal Reserve Board (Board) publishes a weekly digest of its activities on its website. The digest is called the H.2 Release and is published every Thursday. The release for the week ending June 18, 2016, is below.
H.2 Release–Actions of the Board, Its Staff, and the Federal Reserve Banks; Applications and Reports Received
Bank Branches, Domestic
Compass Bank, Birmingham, Alabama — to establish a branch at 5900 Quebec Street, Fort Worth, Texas.
Forms — final Board review to extend without revision the Consumer Satisfaction Questionnaire (FR 1379), Notice of Branch Closure (FR 4031), and Survey to Obtain Information on the Relevant Market in Individual Merger Cases (FR 2060).
-Approved, June 16, 2016
Office of the Chief Data Officer — appointment of Phillip Daher as assistant director.
-Approved, June 15, 2016
Office of the Secretary — appointment of Yao-Chin Chao as assistant secretary.
Accounting Standard — interagency statement on a new accounting standard, issued by the Financial Accounting Standards Board, about credit losses on financial instruments.
-Announced, June 17, 2016
Host State Lending Ratios — interagency release of the host state loan-to-deposit ratios used by the banking agencies to determine compliance with the Riegle-Neal Interstate Banking and Branching Efficiency Act.
Affinity Financial Corporation, Newport Beach, California; and Waterfield Financial Services, Inc. (now known as Affinity Financial Centers, Inc.), Indianapolis, Indiana — issuance of a consent cease and desist order.
-Approved, June 5, 2016 (A/C)
First National Bancshares, Inc., Goodland, Kansas — written agreement dated September 10, 2009, terminated June 7, 2016.
-Announced, June 14, 2016
Federal Reserve Board: Balance Sheet (H.4.1 Release)
The Board publishes data of factors affecting reserve balances. The digest is called the H.4.1 Release, and they are published every Thursday (or the next business day if the publication date falls on a federal holiday). The release for June 23, 2016, is below.
[Note: The blog will cover the line titled “Total Factors Supplying Reserve Funds.”]
H.4.1 Release–Factors Affecting Reserve Balances
Total factors supplying reserve funds (as of June 22, 2016): $4,527,770 (in millions of dollars). (On September 26, 2007, this amount was $900,473 (in millions of dollars)).
Bloomberg published an article about a simmering disagreements between the Federal Reserve Board (Board) and Congress (members of the House Financial Services Committee)
Issues in brief–
Federal Open Market Committee leak, involving Medley Global Advisors. The Board has not responded to Congressional requests for information, citing a Department of Justice investigation. However, the Board conducted a previous investigation (in 2012), which was closed without finding any wrongdoing.
Reform of the Federal Reserve Act. Chair Janet Yellen feels the current structure of the Board is acceptable, according to the Bloomberg article.
In a Bloomberg View opinion piece, former Board Vice Chair Donald Kohn (with his book’s co-author David Wessel) offered suggestions for better Board communication with Congress. One of the suggestions is for the Board to provide Congress with copies of the Monetary Policy Report several days in advance of the hearings (the document is typically sent to Congress less than 24 hours before the first hearing).
The eight suggestions from Kohn and Wessel follow.
The Fed should volunteer — and Congress should agree — to have monetary policy hearings quarterly, rather than twice a year. If the Fed believes that the economy evolves quickly enough to warrant issuing new projections and taking questions from the media every quarter, then the same reasoning should apply to informing the people’s representatives.
In connection with the hearings, the now semi-annual Monetary Policy Report — or a streamlined version of it — should become quarterly. Among other things, the Fed should share the monetary policy rules that it already consults in its deliberations.
The Fed should publicly release the Monetary Policy Report three days before the relevant hearing, so members of Congress and staff have adequate time to digest it.
The Monetary Policy Report should continue to include the Fed’s assessment of financial stability risks. The intersection of these risks and monetary policy should be one focus of the quarterly hearings.
Fed staff should continue to brief and field questions from the congressional staff who prepare members for the hearings. The chair should meet with the leaders of the relevant committees in the week before the hearing.
Congress should establish a process for obtaining and publishing the views of outside experts about key policy issues before each set of hearings.
To make them more informative and allow for more give-and-take, each quarterly hearing in the House should allow only half the committee members to question the chair, and each member should be allotted 10 minutes (instead of the current five).
The Fed should hire outside experts to periodically evaluate the procedures used to generate the economic projections that the Federal Open Market Committee receives from its staff and how the committee presents its own projections to the public. These projections — both the staff inputs and the committee outputs — play a critical role in policy making and should be as sound and well-understood as possible. Other central banks have successfully employed such external peer review, which would help Congress and the public better evaluate the quality of monetary policy.
In this election cycle, economic uncertainty, delivered to the poor and the middle class, has roiled the two major political parties in the United States–Democrats and Republicans. The 2008 economic crisis and its aftermath robbed the majority of people of stability. The rush to completely rescue the financial sector, that caused the mess in the first place, at the cost of the rest of the population, was horrible to witness.
The abandonment of those afflicted with long-term unemployment, with the termination of the long-term unemployment assistance at the end of 2013, left innocent, hard-working Americans to face financial ruin while the rest of the nation moved on. The politicians abandoned people who were victims of the economic crisis. The politicians, of both parties (many of them millionaires), sowed the wind and are now reaping the whirlwind.
Economists have been the drivers of this system behind the curtain. The chair of the Federal Reserve, Janet Yellen, in a response to Senator Robert Melendez (D-N.J.) at the hearing for the Monetary Policy Report (at about 1:22:00 in the video), said unemotionally that people unemployed longer than 26 weeks have “lost skills” and that fiscal policy would be best to handle it.
Meanwhile, the monetary policy assumes that the current level of 26-week unemployment is the best situation and has returned to raising interest rates (that is, the Phillips Curve). This was the cruelest statement that Chair Yellen could have uttered; she, the economic profession consensus, and the Federal Reserve System have abandoned the unemployed people of the United States! Notably, this so-called normalcy includes the doubled percentage rate of unemployment for African Americans and Latino Americans. Such “normal” expectations reflect the failure of both monetary and fiscal policy.
This result, where it appears that he people of this country accept such casually dispensed cruelty perplexes me. Perhaps, it is the action of economists promoting this immoral position, covering such an unacceptable result with confounding calculus and statistical formulae, that prevents necessary critique. Such a situation cannot stand any longer.
This blog covered the paper of Economist Alan Krueger, who proposed the abandonment of the long-term unemployed because he concluded that they lost skills and were destined to persistent unemployment. This paper was published shortly after the Congress decided to let the long-term unemployment program lapse. Krueger, a millionaire, could afford to be unconcerned. Alas, he is financially secure. Frankly, I am sickened by an economics profession that has no tie to humanity or any concern for human beings.
Also, some Fed economists dared to suggest that a burst of hiring accompanied the abandonment of the long-term unemployed. Yet, still to the date of the post of this blog, there are still lots of long-term unemployed people (and people who work who worry about their friends and relatives as well as the instability of their own positions.)
Economic stability is the bedrock of a society. Once that is gone, chaos can only take its place.
The Federal Reserve Board (Board) publishes a weekly digest of its activities on its website. The digest is called the H.2 Release and is published every Thursday. The release for the week ending December 19, 2015, is below.
H.2 Release–Actions of the Board, Its Staff, and the Federal Reserve Banks; Applications and Reports Received
Office of Inspector General — 2016 operating and capital budget.
-Approved, December 16, 2015
Federal Reserve Notes — new currency budget for 2016.
-Approved, December 16, 2015
Monetary Policy Implementation
Federal Open Market Committee — increase in the target range for the federal funds rate to 1/4 percent to 1/2 percent, effective December 17, 2015.
-Announced, December 16, 2015
Interest on Reserves; Discount and Advance Rates — increase in the (1) interest rate paid on required and excess reserve balances from 1/4 percent to 1/2 percent and (2) primary credit rate from 3/4 percent to 1 percent, both effective December 17, 2015.
-Approved, December 16, 2015
Regulations and Policies
Regulatory Burden Reduction — publication for comment of the fourth in a series of interagency notices on potential areas for regulatory burden relief for insured depository institutions, as required by the Economic Growth and Regulatory Paperwork Reduction Act.
-Approved, December 10, 2015
Reserve Bank Operations
Federal Reserve Bank Budgets — operating and capital budgets for the Federal Reserve Banks, Federal Reserve Information Technology, and Office of Employee Benefits for 2016.