Why it’s a problem that a central bank whose job it is to organize credit only has creditors in charge.
By Matt Stoller and cross-posted from his substack blog, BIG.
There are five Senate-confirmed members of the Federal Reserve. It won’t surprise you to know that all five of them are millionaires. Here’s a list, with links to their financial disclosure forms. (If you have some time to poke around and find anything interesting, let me know or put it in the comments.)
- The Chair, Jay Powell, 67, is worth between $20 million and $55 million, the richest Fed Chair in history.
- Randal Quarles, 62, is worth between $24.7 million and $125 million.
- Richard H. Clarida, 63, is worth between $9 million and $39 million.
- Michelle Bowman, 49, is worth between $2 million and $11 million.
- Lael Brainaird, 58, is worth between $3 million and $11 million.
I’ve gone over the financial disclosure forms of all five of these members, and they are all invested in various forms of indexes. Some are invested in private equity funds, Blackrock iShares, or various other assets referencing financial corporations. These strike me as a violation of Section 10, part 5 of the Federal Reserve Act, which says:
No member of the Board of Governors of the Federal Reserve System shall be an officer or director of any bank, banking institution, trust company, or Federal Reserve bank or hold stock in any bank, banking institution, or trust company;
It’s been decades since anyone took conflicts of interest seriously, and I suspect that the Fed has lawyers who can weasel their way into ensuring that Fed board members get to invest in the financial services industry without violating this law. But the statute is there for a reason, which is that the Fed was created in 1913 to take power from Wall Street banks, not to place them on a publicly sanctioned monetary throne. (The original House passed version of the Federal Reserve Act had the Secretary of Agriculture as a Fed Governor, because farmers were the main labor force and borrowing group in the economy back then.)
There’s a more fundamental problem with the arrangement of having an all-millionaire Fed board, aside from any pecuniary gain that might result from all members of the Fed having public positions in which their policy decisions affect their portfolios in similar ways. The Fed is supposed to manage lending and borrowing conditions, but the only people represented among decision-makers are lenders, as opposed to a balance of lenders and borrowers
America is full of people with credit card debt, student debt, auto debt and medical debt, people who have had trouble getting jobs, or people with bad credit, or entrepreneurs who can’t get loans to build their businesses. Young people. Old people. Middle-aged people, of different races. Yet the Fed board is composed of those with graduate degrees and high net worths, most of whom are in their late 50s or early 60s in terms of age…