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Federal Reserve Facing Scrutiny After Corruption Scandals

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Last Friday New York Federal Reserve Chairman and former Goldman Sachs Chief Economist William Dudley went before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection. Dudley testified in the wake of a slew of scandals the New York Fed was caught up in including a secret recording that revealed the Fed looked on the other way on a “shady” deal by Goldman Sachs, allowing Wall Street banks to manipulate commodity markets, and providing inside information to Goldman Sachs about how the NY Fed viewed certain Goldman clients.

Dudley’s typical response to Wall Street corruption being exposed is to give a nice speech and do nothing. After a nice speech via his opening statement about the important role of the Fed, Dudley faced questions that he attempted to provide scripted answers for only to be rolled over by Senators on the committee – particularly Elizabeth Warren who at one point essentially told him to do his job or resign.

The scrutiny and the scandals appear to be instigating some inner-examination of the Fed itself if you believe their press releases, or perhaps it’s just PR.

The Fed announcement looks an awful lot like damage control. It came late Thursday afternoon, directly after one Senate hearing that was critical of Fed practices and before another on Friday. It also came after a bill proposed by Senator Jack Reed, a Rhode Island Democrat, that would change the way the head of the most powerful of the 12 district banks — the Federal Reserve Bank of New York — is appointed. Currently, the president of the New York Fed is selected by its so-called public board members — those not affiliated with financial institutions…

Senator Sherrod Brown, the Ohio Democrat who oversaw those hearings, said in an interview that he was concerned about regulatory capture at the Fed because it could imperil bank examiners’ ability to monitor the safety and soundness of major financial institutions. “It’s clear that the Fed historically has cared way more about monetary policy than they do about supervision,” Mr. Brown said. “That’s why we’re shining a light on what they’re doing and their inadequacies.”

There’s nothing the Fed hates more than transparency and democratic control which it has fought as an institution for decades. The battle over having a central bank itself goes back to the founding of the country with two previous iterations of the Federal Reserve – the First Bank of the United States and Second Bank of the United States – being destroyed out of fears that they would help their rich backers enslave the population with debt and usurp authority from the more representative institutions of government. The more things change, the more they stay the same.

As of now it looks like Dudley will survive as New York Fed president – though the scandals linger. The Fed has, once again, promised to reform itself after a tongue lashing from Congress. Like Tim Geithner before him, Bill Dudley took his public censures in stride perhaps knowing that at the end of the day that’s all anyone can really do to try to make the Fed regulate Wall Street. How’s that working out?

CommunityThe Bullpen

Federal Reserve Facing Scrutiny After Corruption Scandals

{!hitembed ID=”hitembed_1″ width=”500″ height=”281″ align=”none” !}

Last Friday New York Federal Reserve Chairman and former Goldman Sachs Chief Economist William Dudley went before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection. Dudley testified in the wake of a slew of scandals the New York Fed was caught up in including a secret recording that revealed the Fed looked on the other way on a “shady” deal by Goldman Sachs, allowing Wall Street banks to manipulate commodity markets, and providing inside information to Goldman Sachs about how the NY Fed viewed certain Goldman clients.

Dudley’s typical response to Wall Street corruption being exposed is to give a nice speech and do nothing. After a nice speech via his opening statement about the important role of the Fed, Dudley faced questions that he attempted to provide scripted answers for only to be rolled over by Senators on the committee – particularly Elizabeth Warren who at one point essentially told him to do his job or resign.

The scrutiny and the scandals appear to be instigating some inner-examination of the Fed itself if you believe their press releases, or perhaps it’s just PR.

The Fed announcement looks an awful lot like damage control. It came late Thursday afternoon, directly after one Senate hearing that was critical of Fed practices and before another on Friday. It also came after a bill proposed by Senator Jack Reed, a Rhode Island Democrat, that would change the way the head of the most powerful of the 12 district banks — the Federal Reserve Bank of New York — is appointed. Currently, the president of the New York Fed is selected by its so-called public board members — those not affiliated with financial institutions…

Senator Sherrod Brown, the Ohio Democrat who oversaw those hearings, said in an interview that he was concerned about regulatory capture at the Fed because it could imperil bank examiners’ ability to monitor the safety and soundness of major financial institutions. “It’s clear that the Fed historically has cared way more about monetary policy than they do about supervision,” Mr. Brown said. “That’s why we’re shining a light on what they’re doing and their inadequacies.”

There’s nothing the Fed hates more than transparency and democratic control which it has fought as an institution for decades. The battle over having a central bank itself goes back to the founding of the country with two previous iterations of the Federal Reserve – the First Bank of the United States and Second Bank of the United States – being destroyed out of fears that they would help their rich backers enslave the population with debt and usurp authority from the more representative institutions of government. The more things change, the more they stay the same.

As of now it looks like Dudley will survive as New York Fed president – though the scandals linger. The Fed has, once again, promised to reform itself after a tongue lashing from Congress. Like Tim Geithner before him, Bill Dudley took his public censures in stride perhaps knowing that at the end of the day that’s all anyone can really do to try to make the Fed regulate Wall Street. How’s that working out?

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Jane Hamsher

Jane Hamsher

Jane is the founder of Firedoglake.com. Her work has also appeared on the Huffington Post, Alternet and The American Prospect. She’s the author of the best selling book Killer Instinct and has produced such films Natural Born Killers and Permanent Midnight. She lives in Washington DC.
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