We long ago debunked the myth that the Federal Reserve is a governement agency. It’s privately owned member banks are the owners of the Federal Reserve system of Regional Reserve Banks, and a Federally appointed Board of Governors is responsible for oversight. With the administrations plan to grant MORE power to the Fed, some review of its policies to date may be in order.

The fact that the Federal Reserve is managed by a board of  Federal appointees would at one time have embued a certain air of responsible government oversight in it’s management. But with the unpredictable fiscal behavior of government these days, and with the appointment of former Wall Street executives to all areas of fiscal oversight at the Federal level this assumption might require more scrutiny.

The Board’s current Chair is Ben Bernanke.  Among the Board’s responsibilities:

  • Determine open market policies
  • Set the required reserve ratio for member banks
  • Set the Discount Rate
  • Deciding how much new currency to print
  • Monitor the health of the U.S. economy
  • Report to Congress periodically on the state of the U.S. economy 

Now, you may or may not have an opinion about Ben’s decision on how much money to print, or his setting of the discount (interest) rate, or whether he set the correct required reserve ratio for member banks (and whether they adhered to that) or not, but he was indeed a Federal appointee.

Here are some other interesting Federal appointees:

• Hank Paulson, Former Goldman Sachs executive then appointed Treasury Secretary , who along with Bernanke presided over the Bush bank bailouts of, among others, Goldman Sachs.

• Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and Agricultural Affairs.

• Jacob Lew, Chief Financial Officer of Citigroup Alternative Investments Group, as Deputy Secretary of State.

• Michael Froman, Citigroup, Deputy National Security Adviser for International Economic Affairs. Froman was formerly Chief of Staff to (former Goldman exec.) Robert Rubin at Treasury, before following him to Citi.

• Froman’s deputy, David Lipton, ran Citi’s global country risk management effort.

• Lewis Alexander, Citigroup’s chief economist and now Counselor to Treasury Secretary Timothy Geithner (formerly working under Goldman alumnus Rubin at the Fed).

• Neal Wolin, President and COO, Hartford Insurance Company, Property and Casualty Group now Deputy Treasury Secretary (Hartford received $3.4 billion in TARP funds).

• Gary Gensler, Goldman Sachs partner, now Chairman of the Commodity Futures Trading Commission Gensler was a key proponent in pushing the Commodity Futures Modernization Act of 2000.

• Mark Patterson, Goldman Sach’s lobbyist, now Treasury Chief of Staff

• Linda Robertson, Enron lobbyist, head of PR at the Federal Reserve (I just love that a former Enron lobbyist is head of Public Relations at the FED)

Now let’s examine just one detail of  Ben’s career a bit further:

Dr. Bernanke served as the Director of the Monetary Economics Program of the National Bureau of Economic Research (NBER) and as a member of the NBER’s Business Cycle Dating Committee.

We have used the term “behavioral economics” to describe the fantasy realm of economists who subscribe to the theory that economic perception dictates economic reality. This is where, for example, the government’s utterance of “green shoots” begets green shoots, or the government’s utterence of “stress test success” means banks are solvent. In other words, if you simply lie about how bad things are, people will relax, get more confident, start spending and investing again, and the prophecy fulfills itself. I call this the “Thaler Fantasy”.

Let’s do a little background on the funding of NBER, of which Ben was the chairman, and the probable experiences learned from the culture of NBER, which he likely carried over to the Fed:

An institutional base for the “behavioral economists” is the National Bureau of Economic Research (NBER), a think tank located next door to Harvard University in Cambridge, Massachusetts. NBER states that its “workshop in behavioral economics” has been sponsored since 2001 by three private firms: “Bracebridge Capital, Fuller & Thaler Asset Management, and LSV Asset Management.”

The smallest of the three interlocking funds, with about $1 billion in assets, is Fuller & Thaler. Its chairman, Richard Thaler, founded and has directed the NBER program since 1991. Thaler helps coordinate Larry Summers economic policy through his close associates Austan Goolsbee (Obama campaign’s chief economist), and Cass Sunstein (Federal Regulatory Czar). Goolsbee and Sunstein have been fellow professors with Thaler at the University of Chicago.

The next largest fund sponsoring the NBER program is Bracebridge Capital, with over $3 billion and possibly double that in assets under management. Bracebridge is apparenty named for Bracebridge Road in Newton, Massachusetts, where Bracebridge owner Nancy Zimmerman and her husband Andrei Shleifer live.

Harvard Professor Shleifer is Larry Summers’ protege and personal international agent. Shleifer’s own fortune is estimated in the hundred of millions, perhaps a billion dollars. This wealth was generated in the 1990s Summers/Shleifer/Harvard scandal in Russia.

Summers, then a World Bank official, had sent Shleifer to Russia to run a U.S.-funded program to privatize Soviet assets; Summers guided the Russian officials Shleifer was advising. The program collapsed when Shleifer was caught diverting and hiding the assets for himself, using his wife’s firm.

The Shleifer family firm paid $1.5 million in 2004, to settle a U.S. government suit charging that Shleifer had “improperly used USAID-funded resources and staff and … diverted US taxpayer resources for its own purposes and profit…. using their influence with Russian government officials to obtain favorable licensing, funding, and other benefits in violation of the terms of the agreement between USAID and Harvard.” Both Harvard and Shleifer paid millions to settle the suit. Then Summers became President of Harvard in 2001 and blocked any investigation of Shleifer, and himself. Summers was later forced to resign from Harvard in an unprecedented vote of no confidence.

The largest private fund sponsoring the NBER program is LSV Asset Management, in control of $35 billion.

LSV (which stands for its founders, Lakonishok, Shleifer and Vishny) was started by Andrei Shleifer and his fellow “behavioral economist,” University of Chicago Professor Robert Vishny, in 1994, simultaneously with Bracebridge, at the height of the Summers/Shleifer Russia looting scheme.

Shleifer and Vishny have collaborated since at least 1986, writing articles together for NBER all through the Russia debacle, including the audaciously titled paper, “Corruption” — written in 1993 when Vishny directed NBER’s Corporate Finance Program. Around 2005 or 2006, sometime before the global offshore finance bubble blew out, Shleifer sold his share of LVS, netting him perhaps around $400 million.

With his sponsor Summers directing White House economic policy, Professor Shleifer still operates in Russia. Shleifer operates out of his home on Bracebridge Road; or from his villa on the coast of France; or out of the University of Chicago Booth School of Business.

I leave it to you, the reader, to check these facts out and to determine if the Federally appointed Chairman of the Fed, former Director of the Summers-clique funded NBER, has done a good job of setting the appropriate guidance for the private banking system through his appointment to the privately-owned central bank or not.

I have long ago established the character of Larry Summers and his criminal associations in the Soviet disaster, as well as his egregious conflicts of interest as a multi-million dollar hedge fund manager at DE Shaw & Co. and “guest speaker”, receiving further millions in engagement fees from the very banks we are bailing out (including Goldman Sachs).

The fact that Larry Summers, whose ”questionably” acquired millions bought him a plea bargain in the Russian scandal, was forced to resign as President of Harvard in an unprecedented vote of no confidence, is a national disgrace. After firing Iris Mack for blowing the whistle on the endowment’s high-risk derivative investments, he ultimately cost Harvard 18 billion, nearly bankrupting the endowment.

But he is also a Federal appointee … to the White House.

I will also leave it for you the reader to examine the quote, “In addition, the Fed does not use any taxpayer money to fund its operations”. Considering that my taxpayer dollars pays the salary of it’s federally appointed governors that technicality seems a bit like slight of hand, but I don’t take exception to it. The more central question is:  did the Fed help ENABLE private banks to leverage on speculative derivatives doomed to collapse, and did that collapse predicate a taxpayer funded bailout?

But before we answer that question, let’s give them more power.

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