Saturday, September 26, 2009

Answer truthfully.

Who can you name first, the Federal Reserve Chairman or Brad Pitt's wife?

That's what I thought. And while you're at it, why don't you take some time to explain to me the inner-working of the Federal Reserve system, like the number of branches it has, who the board of governors are and the primary role of the Federal Reserve. Psst. By the way, it is NOT the job of the Federal Reserve to insure your money at the bank. That's the FDIC, who we will mention later.

Not many Americans get beyond answering Angelina Jolie, by the way. Which is deliberate in design in my opinion.

After all, if you ran an organization that was created by Congress but wasn't responsible for opening its' books for audit, would you be in a hurry to make the organization well-known? That's exactly what are friends at the Federal Reserve are suggesting, by the way, when they appeared earlier this week in front of the House Financial Services Committee. The committee is suggesting the Federal Reserve open the books for an audit conducted by the GAO (General Accounting Office.) After all, it is our money and we would like to see exactly how it's being spent from time to time. And yes, I agree with Barney Frank on this one. Representative Frank is proposing this legislation.

The prevailing mentality seems to question what the Fed is hiding and why they don't want to open the books up for review by the very body that created their existence. Our friends at the Fed maintain the position that theirs "is a politically neutral position" and any dabbling in the books would have an adverse impact on the economy.

Psst. Excuse me, Mr. Bernake? Take a look around. The economy already is in shambles and by the way, I pay your salary and am your boss. Remember that Obama guy who re-appointed you? Yeah, well Joe Taxpayer voted him in and it's his job to make sure you're doing things right.

My thoughts? It's deeper than that. And at the risk of getting too technical, I'm going to tie-in previously mentioned FDIC (Federal Deposit Insurance Corporation) and our friend Shiela Bair. You're going to be hearing a lot from Sheila in the coming months, so I'd get used to hearing her name. She runs the FDIC, which is an insurance company in place that allows us to feel safe and secure knowing our money will be paid back to us if our bank should fail. The banks fund the insurance policy through their membership, and the organization was created in response to the great depression rush on the banks. Naturally the thought process was to avoid another run on banks when depositors felt unsure about their bank's stability.

Guess what, folks? They are running out of money at the FDIC. Sheila and her group had a balance of just over $45 billion in June of 2008 according to Fortune Magazine. As of close of business June of this year, the balance clung to about $10 billion. Gulp.

And with more banks set to fail (to date the FDIC has allowed 94 banks to fail this year and 25 last year) the FDIC is getting precariously close to the edge of needing it's own bailout. By the way, the FDIC has a list of over 400 troubled banks that could go under at any minute.

Shazam! Flash back to our friend Ben and his merry men at the Federal Reserve Board. The Fed has extended an open line of credit for up to $100 billion to the FDIC in case of emergency (think of it like a Visa card for you and a credit line of $1 million.) Additionally, new legislation passed this year allows the FDIC to hit that line for up to $500 billion in an extreme emergency. This is the same Fed that gave bailout funds, er, I mean TARP funds to banks like PNC so that they could buyout ailing banks at a 5% rate. Banks like National City, who otherwise would have already imploded and further hit the FDIC wallet, further reducing that $10 billion balance. Odds are good there's another bank of significance on the brink (Cough Cough... Citi....)

So back to our beginning question and resulting debate: Why is the Federal Reserve really afraid of opening up its' books and allowing the General Accounting Office to take a peek under the hood? Could it really be to avoid political bias, or could it be more a reason of fear. Fear that there is no oil in the engine, the battery is dead, the brake lines have been cut, the transmission is leaking and oh yeah, by the way, it's out of windshield wiper fluid too. I propose the latter.

One final note to ponder, and then I'll let you go this fine morning. The Federal Reserve raises funds through auctions of Treasury Bills and notes, also known as DEBT. You issue debt when you don't have enough money to meet short-term expenses. Joe Taxpayer is footing the bill for this.

Let the banks implode. Get rid of the Federal Reserve and let the FDIC figure it's own way out of this one. Enough of the fiscal parenting for lousy monetary policies. Let's get back to basics and provide budgets that are real and attainable and a government that is there to merely implement the will of the people.

I can't believe I actually agree with Barney Frank!

1 comment:

Anonymous said...

Trick questions - they are the same person.