Joseph Stiglitz - former head economist at the World Bank 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.
we [i.e. the World Bank] 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
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