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By George Washington - OpEdNews
Joseph Stiglitz - former head economist at the International Monetary Fund (IMF) and a nobel-prize winner - said yesterday that the very structure of the Federal Reserve system is so fraught with conflicts that it is "corrupt" and undermines democracy.
Stiglitz said:
If we [i.e. the IMF] had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure.
Stiglitz pointed out that - if another country had presented a plan to reform its financial system, and included a regulatory regime that copied the makeup of the Federal Reserve system - "it would have been a big signal that something is wrong."
Stiglitz stressed that the Fed banks have clear conflicts of interest, since the banks are largely governed by a board of directors that includes officers of the very banks they're supposed to be overseeing:
So, these are the guys who appointed the guy who bailed them out ... Is that a conflict of interest?
They would say, 'no conflict of interest, we were just doing our job. But you have to look at the conflicts of interest"...
The reason you talk about governance is because in a democracy you want people to have confidence ... This is a structure that will undermine confidence in a democracy.
Indeed, by all objective measures, the Fed has performed horribly (and see this).
As 6 congressmen wrote last November, there are at least 4 reasons to demand full transparency of the Federal Reserve, and a change in the Fed's structure:
First ... how effective a regulator can the Federal Reserve be if it is unwilling to strive for good public policy through its regulatory powers?
Second, there is an inherent conflict in the manner in which regional reserve branch presidents are selected in that representatives of the member banks select the regional president. It seems counterproductive, yet the banking system has provided case after case of regulated entities selecting their own regulator.
Third, the Federal Reserve has continually resisted efforts to engage in discussion on structural and governance reform at the System. Most recently, Bloomberg reported yesterday that the Federal Reserve has rejected a White House request that [the Federal Reserve] conduct a public review of its structure and operations.
Despite a request from the administration that provided ample opportunity for the Federal Reserve to have input into its own reforms, the central bank has simply refused. It is because of this attitude that I argue that real financial regulatory reform cannot occur without an examination into the structure of this entity.
Fourth, and most importantly, the Federal Reserve has shown a repeated unwillingness to accept efforts to improve transparency for the System.
Author's Bio: George Washington
As a political activist for decades, I have rejoiced in victories for the people and mourned in defeats. I chose the pen name "George Washington" because - as Washington's biographies show - he wasn't a very good strategist, but he was incredibly persistent. He hung in again and again during the worst setbacks and bleakest winters for years. That is what made him great: he simply refused to quit. George Washington therefore inspires me to be a life-long activist.
As an attorney and former law school professor, I am a firm believer that no one - even the high and mighty - are above the law.
As someone trained in environmental systems analysis, I am always looking at how different trends influence each other ... and the big picture.
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