Barney Frank Working On Legislation To Overhaul The Federal Reserve

Representative Barney Frank, the ranking member of the House Financial Services Committee, is working on legislation that would transform the Federal Reserve's decision-making process.

According to Bloomberg and The Hill, Frank plans to submit a bill that would remove the votes of the five regional Federal Reserve presidents from the 12-member Federal Open Markets Committee (FOMC), which sets interest rates, and replace them with five appointees that would be nominated by the president and confirmed by the Senate.

Frank is concerned that the process is undemocratic because the regional Fed presidents are not elected or appointed by elected representatives, and he believes that regional Fed presidents are overly likely to focus on guarding against inflation at the expense of more adequately tackling the country's unemployment crisis.

Traditionally, seven governors of the Federal Reserve are appointed to the FOMC in such a way, while the president of the Federal Reserve Bank of New York has a permanent seat on the committee, and four of the 11 presidents of the other regional banks have one-year rotating terms on the committee.

The new legislation will be a revision of legislation that Frank originally proposed in May.

Frank said in a statement on Monday that the current structure of the FOMC allows for a "self-perpetuating group of private citizens" to keep "skewing policy" at the Fed, according to The Hill.

Frank's committee analyzed the voting patterns of the FOMC in 2009 and found that 90 percent of the committee's dissenting votes were made by the five regional presidents. That public naysaying has hurt the Fed's ability to influence the economy, Frank said.

There has been a growing chorus of concern about the Federal Reserve's secrecy. Bloomberg News revealed last month that the Federal Reserve loaned $1.2 trillion of public money to banks in an effort to save the financial system and the economy with it: a move that could have made Wall Street complacent about receiving such loans in the future when the economy sours.

Some economists also have expressed concern that the Federal Reserve is not serious enough about fulfilling its mandate to maximize employment. One Fed official found that the Fed's purchases of more than $2 trillion in mortgages and U.S. debt may increase unemployment. New York Times columnist Paul Krugman has consistently lambasted the Fed's fear of further action because it could cause inflation. Krugman wrote in August that the Fed has been "intimidated into inaction." Berkeley Economics Professor Brad DeLong also has criticized the Fed's focus on inflation. "There is a requirement for price stability--and right now prices and demand are unstable downward," DeLong wrote, arguing for the Fed to be more concerned about deflation and unemployment.

Frank has called the issue "a matter of democratic principle," since the regional Fed presidents "are not elected and not appointed by people who are elected making important decisions."

"The Federal Reserve has a dual mandate for being concerned about unemployment and inflation," Frank told Fortune Magazine in May. "There is a tendency by members picked by regional business people to focus much more on inflation and not enough on unemployment. So the current structure biases the Federal Reserve away from one half of its duty. I want there to be equal attention to unemployment and inflation."

Dallas Fed President Richard Fisher, a FOMC member who has often warned about the dangers of inflation, said on Monday that the Federal Reserve would risk a public backlash and its independence if it allowed prices to rise to help the economy recover.

"There's a difference between theory and practice," said Fisher, a former money manager. "I think it is important to take into account the consequences."

CORRECTION: An earlier version of this story incorrectly stated that the Federal Reserve loaned banks $1.2 billion. The figure in fact is $1.2 trillion.

Comments

[gfe]

07:57 PM on 10/04/2011

Giving this power to ANY politican is WRONG for america....

be sure to THANK barney for the new bank fees all americans will now pay.......

[ifmd91]

09:23 AM on 10/24/2011

Look what Frank and Dodd have done to the banks.....what OWS is complaining about they have made worse!!

Dodd-Frank gives the federal government increased power to control not only large banks, but also small banks and businesses.

Ironically, financial-sector concentration has continued to increase.
Rep. Ed Royce (R-Calif.) notes that before the banking crisis, the top 10 banks in the United States held 55 percent of total banking sector assets; today, they hold 77 percent.
Though Dodd-Frank is still in the implementation phase, it is becoming clearer that this complex legislation imposes regulatory burdens that will stifle efforts to grow businesses, but will not result in beneficial financial reforms. Indeed, most banks are expected to make up for lost revenue from regulations through increased fees for checking accounts or higher interest on loans.

A major concern is that small businesses will be unable to obtain financing as a result of Dodd-Frank. When there are more restrictions on the loans banks can make, fewer loans are made. In fact, loans to small businesses have tumbled to a five-year low. Because the law governs everything from traditional small business loans to personal credit cards and home equity loans, access to capital for small businesses will be restricted.

[carolina919]

06:52 PM on 09/16/2011

Bloomberg News revealed last month that the Federal Reserve loaned $1.2 trillion of public money to banks in an effort to save the financial system and the economy with it:
/////////////////////

So much for worrying about the half trillion or so that the Congress gets excited about on a routine basis......I certainly didn't realize that the "Fed" had this kind of power but then again I think that's pretty much the problem. MOST of us don't realize the interconnectedness of private banks to the monetary policies of this country. No wonder they've been able to "fix" the wealth transfer of the last half century. I don't know if Frank's idea is the solution but it certainly appears that we need more alignment with American families' bottom lines than a continued preoccupation with Wall Street's.

[cassie reinara]

01:51 PM on 09/14/2011

Overhaul? How about turning off the printing presses and ending the self serving unconstitutional entity once and for all? It does not serve the interest of the American people. It only serves the selfish interests of the banking cartel.

[Papa Tightwad]

01:24 PM on 09/14/2011

Good idea. What he did to overhaul mortgages over a decade ago did so well, I can't wait to see how he fixes the Fed Res.

[xhawk2]

01:06 PM on 09/14/2011

Barney Frank is one of the few who have BENEFITED from the economic crisis thanks to his share of Fannie and Freddie.

[VoteThemAllOut]

11:20 AM on 09/14/2011

When all is done and said, we are all in trouble - Barney F demonstrated his ability to totally screw the people when he pushed Freddie & Fannie and the banking industry to relax the credit standards for home buyers. Now he is going to 'fix' the fed reserve?

[Carl Caroli]

11:16 AM on 09/14/2011

If they do as good a job as they did with the SEC, we're screwed.

[Joe Friday]

11:05 AM on 09/14/2011

Barney overseeing the Fed is like asking him to oversee Fannie Mae!

[olddognewtrick]

12:56 PM on 09/14/2011

oops! sorry wrong barney...

[cassie reinara]

01:52 PM on 09/14/2011

The purple dinosaur would do a better job at this.

[JustSpankinUrMom]

09:59 AM on 09/14/2011

Isn't that kind of like having a drug addict run a pharmacy?

[frank day]

10:59 AM on 09/14/2011

Like putting Hank Paulson in charge of Treasury !!!!!!!!!

[dsa1115]

12:05 AM on 09/14/2011

Please Barney, you've already created enough damage in the mortgage crisis, Freddie Mac and Fannie Mae. The last thing our country needs is you meddling with the Federal Reserve. God help us.

[softcement]

11:55 PM on 09/13/2011

Nearly everything this man does turns into a disaster.

[irochfpst]

10:51 PM on 09/13/2011

if barney franks really wants to help america he should move to get rid of the federal reserve altogether.

[JustinP213]

09:52 AM on 09/14/2011

Now you're talking.

[Punzelda]

09:58 PM on 09/13/2011

I don't care who says it or gets it done, but the unFed must end. Replace it with 50 non-profit state-owned banks, cancel all state debt held by the Fed, and you'll have a Federal Reserve that will actually fund business and infrastructure investment in this country.

[carolina919]

06:47 PM on 09/16/2011

Anything that would more closely align monetary policy with main street America HAS to be an improvement. Bill Still's important conversations about the Federal Reserve deserve more press. And toward the end of his video he shows how Scandanavian countries and the only state bank in the US...North Dakota's.....are still solvent and thriving.....It's certainly worth thinking about

Secret of Oz . com

http://www.youtube.com/watch?v=swkq2E8mswI (From Tom Langley 58 on HP April 24, 2011)



No more national debt:

Create more money. Banks must stop lending money that they do not have (10-12 times more than they have on deposit) (Goldman Sachs 300 to one) Obama's proposal to lift any reserves allows banks to consolidate the assets of a nation

Two prong

Wealthy control things, government is subverted
Government elected by the people and money created by their government is the only thing standing between us and serfdom

No more borrowing. Create national monetary reform. Don't borrow it. Create it and push liquidity into the system.

Bankers excesses triggered the Progressive movement of a century ago and we are called upon to finish the work those progressives started, listen again to William Jennings Bryan and the voices of sanity across the world who see the disastrous web spun by commercial banking for what it is - the enemy of the people.

[Spanky231]

09:36 PM on 09/13/2011

How about taking the Fed from a PRIVATE organization and making it an agency of the federal government with OVERSIGHT????????

[MadeinUSAJOBS]

05:47 PM on 09/13/2011

Wouldn't that 1.2 trillion loaned to the big banks have wiped out most underwater mortgages for primary homes and then homeowners could have gotten 4% fixed mortgages and kept their homes???

The banks?wall street should have to eat that worthless paper they committed fraud against the people with.

The people's salaries have come down; prices need to come down .

I heard /read that the liquidity threw around by the Fed. caused the speculation and commodities to go up resulting in higher prices for meat, coffee, orange juice. oil etc.

If Fed. can offer direct help to main street, fine.

Do not bail-out banks, wall street, multi-national corp. They did not go out of their way to help main street credit unions, small buinesses etc, laid off workers. They can use their hoarded money to bail themselves out with.

If they had not destroyed manufacturing here and moved to China for cheap wages and China paid government healthcare and left us with service jobs paying $8.00 an hour and unemployment, we may have had revenues to help them out with.

They are all too international linked so our taxes/money we borrow from China go all over the world,. We are broke and downgraded, we need every penny, we can scrap together for our middle class needs..

We are already suffering and misery loves company.

They stole people's retirement, homes and jobs. Let them hit the bottom too, might get our prices down sooner.