The Federal Reserve System, despite its immense power and influence over people’s lives, rarely becomes an issue in a modern presidential campaign. The complexity and opacity of the system, as well as its institutions, confounds and exhausts most Americans – as does the discussion of monetary policy generally.
Nonetheless, Democratic presidential candidate Senator Bernie Sanders has launched a major reform proposal, the details of which are now published in The New York Times. The proposal can be fairly called a full-frontal assault on the Federal Reserve.
Under Senator Sanders’ plan, to prevent conflicts of interest Wall Street bankers will be kicked off committees and replaced by people representing “labor, consumers, homeowners, urban residents, farmers and small businesses.” Currently, the Federal Reserve is run by former and current Wall Street executives with four of the 12 regional Federal Reserve presidents previously working at Goldman Sachs.
It is hard to exaggerate how epic a cultural shift it would be to have representatives of small business people, laborers and farmers instead of Wall Street bankers helping to run the Fed. The entire culture of the Fed is built around serving Wall Street interests with a revolving door between the Federal Reserve and Wall Street perpetually spinning. That incestuous relationship facilitates corruption as a recent case of illegal collusion between Goldman Sachs and the New York Federal Reserve branch well-illustrates.
In order to change the makeup of Fed board membership, Sanders would require all board members to be nominated by the president and approved by the Senate. Currently, the president and Senate only select the chairperson of the national Federal Reserve board, with the rest of the membership chosen by those already inside the Fed (Wall Street).
But the Sanders plan goes even further than remaking membership, challenging the current authority of the Fed to make monetary policy independent of the legislative, executive, and judicial branches. Under the Sanders plan, the Fed would be forced to reorient its operations away from serving large banks and towards pushing member banks to issue more direct and favorable loans to small businesses.
Combine the Sanders reform package with his already stated position of reimposing Glass-Steagall and breaking up the Too Big To Fail banks, and it is no exaggeration to say that Sanders is Wall Street’s nightmare candidate. Former Governor Martin O’Malley has called for reimposing Glass-Steagall but has yet to make any mention of democratizing the Fed. Meanwhile, former Secretary of State Hillary Clinton has taken money from Wall Street both professionally and personally and has offered no substantive proposals to rein in Wall Street’s power.
The ultimate question is, of course, if any of these proposals has a chance of becoming law. There is also a provision in Sanders’ plan for the Government Accountability Office (GAO) to conduct an annual audit, but it’s worth noting Sanders was criticized for backing off more-expansive oversight in order to pass an audit-the-Fed bill in 2010.
The intensity of opposition to the 2010 audit bill led Sanders to make concessions, which is indicative of how tough a fight will be to challenge the power of the Fed in Congress now. That includes both Wall Street’s power and the power of those advocating to keep the less-democratic Federal Reserve System. Winning the presidency will just be the beginning of the struggle.