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InvisibleBlack -> RE: Who owns the Federal Reserve? (4/25/2010 7:17:02 PM)
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quote:
ORIGINAL: pahunkboy
With all the educated people here- per haps someone could show me who owns the Federal Reserve.
I think that Tazzy and RO are arguing at cross-purposes here since the majority of what they've each said doesn't contradict the other.
The debate whether the Fed is public or private has been going on forever. There isn't a clear answer. The Fed is one of those "quasi-public" entitiies like Fannie Mae or Freddie Mac. It's chartered by the Federal government but it's not a public entity. The regional Fed banks are owned by their member banks. Obviously this gives the member banks a lot of pull with the regional banks.
The Fed is not-for-profit. One can be a not-for profit comapny and turn a profit. It happens all the time. You just have to take those profits and use them according to the purposes of the organization rather than declare them as profit or pay extra-dividends or whatever. If UNICEF made some shrewd investments and earned a million dollars more than they gave to charities that year - they would then have to take that extra million and disperse it likewise - not pay it out to the shareholders or the owners or retain it or whatever. That's what "not for profit" means. It doesn't mean that you never make more money than you spent.
If the Fed earns more money than it needs to pay its expenses and pay out its fixed 6% to the member banks (and it pretty much does every year, as I recall) it has to turn that "profit" over to the Treasury Department. Thus - the Fed is "not for profit". It's books balance exactly - there's no entry in the profit column.
I don't believe that there's any deep dark mystery or huge secret to the Fed. During the Panic of 1907, J. P. Morgan single-handedly saved the economy. He personally decided which banks would live and which would fail. He personally organized the banking community and arranged a bailout of the stock market. The Secretary of the Treasury rode to J. P. Morgan's house and gave Mr. Morgan the entire contents of the Treasury to help save the economy. Backed by that, his own personal fortune, and the wealth of John D. Rockefeller, J. P. Morgan did exactly that.
Following this, it was felt that no single individual should ever have such power over the economy. In 1910, a secret meeting was held at Jekyll Island in Georgia with the major bankers and members of Congress and when they were done, they'd created the plan that would become the Federal Reserve. Some believe that this was part of a huge conspiracy to control the economy. I disagree with this. Not that the goal was to control the economy but that it was a "secret" conspiracy. They were obviously trying to work out what to do. The results were the "Aldritch Plan", named for Senator Aldritch who was one of the attendees and it eventually become the Federal Reserve Act of 1913, which was passed by Congress.
There has always been serious debate about how to run the economy and who to entrust with the power to create money and control the banking system. Many solutions have been tried. Both the First and Second Bank of the United States had problems. The periods with no central banking authority had their own set of issues. The solution we're currently trying on is the Federal Reserve System.
The stated goal of the Federal Reserve is "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates". Given this, I would have to rate the Fed as a failure. Within 20 years of its formation we had the greatest economic collapse in the history of the nation. Since then it has not achieved anything close to a stable maximum employment, stable prices or moderate long-term interest rates. The stablility we do have I put down to the actions of Congress during the Depression (such as the Glass-Steagall Act, which created FDIC) than to any activities of the Fed.
Beyond that, both the Federal Reserve and the Department of the Treasury have, in my opinion, become compromised by the banking industry. Officials in both organizations routinely move from running major banks to positions of the authority running the economy and regulating those banks, and then back to running major banks. It's ludicrous.
Major reform is needed - but not in the way they're looking at it. Appointment of more regulators is a sad joke. Thousands upon thousands of regulators already exist and they were unable to take any meaningful action. What's needed is to re-assess the existing system and then change the way it does business. I think a solid audit of the Fed is not only a good idea, I think it's mandatory prior to any other actions being taken. Once a clear understanding is obtained as to what it is exactly that the Fed has done over the past decades, a decision can be made as to which of those actions were necessary and which should be prohibited. If a majority of them should be prohibited, then the proper course of action would be to disband the Fed and try something else. If only a few of them should be prohibited, then simply passing simple and clear laws (something like "The Federal Reserve is forbidden to purchase government bonds.", "Any sitting member of the Federal Reserve is forbidden from working in any banking or related financial industry for a period of not less than 10 years after leaving the Federal Reserve." and "The Federal Reserve may not issue notes nor incur debts beyond its actual capitalization.") might be sufficient.
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