In Sunday’s New York Times, business columnist Gretchen Morgenson reported a piece of investigative journalism that is transcendently important, but whose complexity may have obscured that. It concerns secret dealings of the Federal Reserve Bank of New York. Morgenson explains the importance of her topic in terms of the threatened erosion of social trust that can occur when central banking officials engage in dubious behavior.
I would add that her topic, dubious dealings of central bankers, is of vital importance because those who run the FRBNY have enormous power in the field of banking regulation. They oversee the largest banks and provide direct input into the Financial Stability Oversight Council, the interagency government organization created by the Dodd Frank Act to oversee the financial system. It is empowered to intervene when the next financial crisis occurs, which could be later this year or five years or ten or what have you.
As with the financial crisis of 2008, these government actors, dominated by the FRBNY, will call all the shots about which institutions to save, sell or seize, on the one hand, and which creditors and shareholders to pay, wipe out or shortchange, on the other. How they exercise these powers is thus a matter of the utmost national interest. How they exercised them in the 2008 crisis remains both obscure and questionable. Read More