raghu <[email protected]> wrote: >... "Cartel of bankers" is an accurate description of > the NY Fed, but the regional Feds and the Board of Governors are rather more > complicated beasts.
It is more accurate to say that the Fed Reserve System _acts like_ a government-sponsored cartel of bankers (which is my usual summary). (By the way, have there been many (or any) cartels that weren't approved by their governments?) Its original purpose was to stabilize banks, acting as the lender of last resort, while since its founding it has acted first and foremost to stabilize finance (given the Fed's leaders' understanding of the world). Note that a "cartel" is not the same thing as a monolith: as with the usual cartel, there is sometimes a conflict between what's perceived as being good for the banking sector as a whole in the long run and what the individual members want _right now_. In extremely simple terms, banks want to lend as much as possible, but the Fed usually wants to limit the supply of credit. Usually the central planners at the Fed win this conflict. The regional Feds may not be _literally_ owned by the local member banks (the way someone owns stock in Microsoft), but it's clear from experience that the local financiers have a big effect on the attitudes of their local Reserve banks. A lot of what the Reserve banks do is mundane, such as helping with the clearing of checks. But that's part of serving the banks. (BTW, the New York Fed's obedience to the interest of NY financiers is not the same as acting like a cartel. A cartel limits its members.) The Board of Governors is appointed by the President and must be approved by Congress. Because neither the President nor Congress are "anti-bank" (to say the least), the Board hardly goes against banker interests. This is partly an artifact of the unfortunate fact that there is no organized political movement to "countervail" the interests of banks and financiers in government. Edwin (Tom) Dickens of St. Peter's University economics has done a lot of research indicating the way the Fed represents the interests of finance against those of the working class. Epstein and Ferguson have shown how the Fed's policies reflected bank interests in the early 1930s and thus prevented anti-deflation policies. The Fed started expansionary market operations. But because the US economy's collapse had pushed banks to liquidate their loans and invest in short-term securities (especially T-bills), falling short-run interest rates rates directly and significantly hurt their earnings. So the bankers successfully pushed the Fed to abandon its expansionary policies. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
