How the Federal Reserve Is Manipulating Our Kids Into Loving Wall Street
Each year the Federal Reserve sponsors a national academic competition to indoctrinate our leading high school students into revering the marvels of modern finance capitalism. Unfortunately, nowhere in that intensive program do our students learn about how the largest U.S. banks have turned the Federal Reserve into their own private piggy-bank.
The Fed, through a series of regional and national contests called the Fed Challenge, has shown little interest in giving kids a fair and balanced curriculum. Rather, its stated purpose is to provide students with “the opportunity to study the U.S. economy through the lens of the U.S. central bank.” Students are quizzed by a panel of mainstream economists about the role of the Fed and how it “makes interest rate decisions to foster economic strength and stability.”
What they won’t learn are the myriad of ways in which the central bank bolsters the “strength and stability” of Wall Street….at our expense.
For a more accurate view, our students would do well to study with Senator Bernie Sanders, the Vermont lawmaker who secured legislation mandating that the Government Accountability Office (GAO) audit the Fed. Perhaps we should launch a new economics contest and call it the Sanders Fed Challenge.
Our initial document for study would be the first audit Sanders secured in June 2011. As a result, Sanders said, “We now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world. This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else." (For a comparison, $16 trillion in financial assistance given to these large banks by the Fed is about a trillion more than the U.S economy produces in a year.)
Next, students should look carefully at the October 2011 GAO audit that painted an ugly portrait of crony capitalism. It revealed how the 12 regional Federal Reserve banks are top-heavy with representatives from the very financial interests the Fed allegedly regulates and monitors. (These regional bank boards are supposed to have a balanced group of directors from financial institutions, other private sector corporate representatives, and representatives from labor and consumer organizations.”)
So are you ready for the Sanders Fed Challenge?
Question #1: Please estimate the distribution of federal reserve regional board members from banks, corporations, labor, and consumer groups from 2006 to 2010?”
You suspect it may be a bit tilted toward Wall Street?
Well done! Here are the findings from the GAO audit:
Labor: 6 (4.3%)
Consumer 5 (3.6%)
Non-financial corporations 56 (40.0%)
Banking interests 73 (52.1%)
Question #2: What impact do you think this distribution has on Federal Reserve policy?
You say it has the potential to cause a few conflicts of interest?
Right again! And the result is the biggest robbery in world history. Here’s what they’ll never teach in the Fed Challenge:
As Wall Street imploded late in 2008 due to its reckless gambling spree, some of our biggest financial institutions were on life support. Virtually every major Wall Street firm was in danger of going belly-up as the financial system became clogged with “toxic assets” based on fictitious bets upon bets. There were so many toxic assets rotting on and off the bank and investment house balance sheets that no one would lend to anyone else.
But along came the Federal Reserve which poured trillions of dollars into these banks. Of course, these same banks were more than amply represented on the regional Federal Reserve boards, especially the all-important New York Federal Reserve. It was like letting the kids loose in the candy store. Here are some of the goodies revealed by the third Sanders-inspired GAO audit released earlier this month:
Jamie Dimon, the chairman and CEO of JP Morgan Chase, has served on the Board of Directors at the Federal Reserve Bank of New York since 2007. During the financial crisis, the Fed provided JP Morgan Chase with $391 billion in total financial assistance. JP Morgan Chase was also used by the Fed as a clearinghouse for the Fed's emergency lending programs.
In March of 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns. During the financial crisis, the Fed provided JP Morgan Chase with an 18-month exemption from the capital requirements that were supposed to make its bets less risky for American taxpayers. The Fed also agreed to take bad mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired the troubled investment bank.
Jeffrey Immelt, the CEO of General Electric, served on the New York Fed's Board of Directors from 2006-2011. General Electric received $16 billion in low-interest financing from the Federal Reserve’s Commercial Paper Funding Facility during this time period.
Then there's Stephen Friedman. In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company, which gave it access to cheap Fed loans. During the same period, Friedman, who was chairman of the New York Fed at the time, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed’s rules prohibited. He received a waiver in late 2008 that wasn't made public. After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January 2009 unbeknownst to the Fed, according to the GAO. During the financial crisis, Goldman Sachs received $814 billion in total financial assistance from the Fed.
Sanford Weill, the former CEO of Citigroup, served on the Fed's Board of Directors in New York in 2006. During the financial crisis, Citigroup received over $2.5 trillion in total financial assistance from the Fed.
Richard Fuld, Jr, the former CEO of Lehman Brothers, served on the Fed's Board of Directors in New York from 2006 to 2008. During the financial crisis, the Fed provided $183 billion in total financial assistance to Lehman before it collapsed.
James M. Wells, the chairman and CEO of SunTrust Banks, has served on the Board of Directors at the Federal Reserve Bank in Atlanta since 2008. During the financial crisis, SunTrust received $7.5 billion in total financial assistance from the Fed.
And to really counter the neoliberal indoctrination from the Fed, here are a few more questions from our proposed Sanders Fed Challenge:
What happens to our economy when the top 10 banks own 77 percent of our nation’s banking assets? What best describes this arrangement? An oligopoly? A financial aristocracy? Free markets run wild? (Feel free to use your own terms.)
How did the Federal Reserve miss the housing bubble? Why did it let the banks create and use new financial instruments that turned Wall Street into the largest and most destructive casino in history?
Part of the Federal Reserve’s mandate is to deal with consumer mortgage fraud. Why didn’t it follow up on reports showing massive predatory lending at key mortgage companies? After hearing about massive mortgage fraud, why didn’t the Fed act?
Why didn’t Federal Reserve find ways to bail out homeowners and the unemployed instead of the very banks that crashed the economy?
Since the 2008 crash, what is the net impact of Federal Reserve policies on stock market prices, housing prices and unemployment? Who benefits most and least as a result of these impacts?
What does it mean for our economy and our society when the financial sector becomes larger and larger compared to the sectors that produce real goods and services?
And for extra credit, what responsibility does the Fed have for the decline of median family income (which was recently revealed in the 2012 Federal Reserve Survey of Consumer Finances). How did the Fed contribute to the structure that allows the top hedge fund managers to “earn” in just one HOUR what the average family makes in 50 YEARS?
Hell will freeze over before the Fed Challenge will encourage its students to square up to the financial coup d’état that has taken place over the past 30 years. But as our kids enter that very hell, let’s hope they have the skill and the courage to challenge Wall Street’s stranglehold over our economy.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).