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Overview:

The Federal Reserve (the “Fed”) is the nation’s central bank. A quasi-public institution founded by the U.S. government, the Fed wields enormous power over the financial system and the economy of the United States. Consisting of a dozen regional banks and led by a presidentially-appointed board, the Fed makes decisions that can raise or lower interest rates, increase or decrease the money supply and regulate the activities of banks and other financial institutions, among other things. Since its founding in the early 20th Century, the Fed has been scrutinized for its many controversial decisions. During its early years, it was faulted for not doing more to prevent the Great Depression of the 1930s. In 2008, the Fed has made several controversial decisions as the nation’s struggles with the greatest threat to the U.S. financial system since the Stock Market crash of 1929. The Fed has moved to prevent certain major financial institutions from going bankrupt, while allowing others to falter and be sold to rivals. Perspectives on the Federal Reserve range from helping it grow even more powerful to abolishing it altogether.

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History:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The United States’ first paper currency was known as “continentals,” printed to finance the American Revolution. The currency was printed in such quantities that it led to inflation, and the American people soon lost faith in the notes.

 
At the urging of the federal government’s first Treasury Secretary, Alexander Hamilton, Congress established the First Bank of the United States, headquartered in Philadelphia, in 1791. It was the largest corporation in the country and was dominated by big banking and money interests. Many ordinary Americans were uncomfortable with the idea of a large, powerful central bank, and so were numerous lawmakers. When the bank’s 20-year charter expired in 1811, Congress refused to renew it.
 
A Second Bank of the United States won approval in Congress five years later, in 1816. But like the first bank, this second bank had its detractors, including President Andrew Jackson, whose opposition helped kill the bank when its charter expired in 1836.
 
For the next several decades, state-chartered banks and unchartered “free banks” popped up around the country and issued their own bank notes, redeemable in gold or silver. Banks also began offering demand deposits (the forerunner to modern checking accounts) to bolster banking opportunities for citizens.
 
During the Civil War, the National Banking Act of 1863 was passed, providing for
nationally-chartered banks whose circulating notes had to be backed by U.S.
government securities. An amendment to the act required taxation on state bank
notes but not national bank notes, effectively creating a uniform currency for the
nation. Despite taxation on their notes, state banks continued to flourish due to the
growing popularity of demand deposits.
 
Although the National Banking Act of 1863 established some measure of currency
stability for the country, bank runs and financial panics plagued the economy. In 1893 a banking panic triggered the worst depression the United States had seen up to that point, and the economy stabilized only after the intervention of financial mogul J.P. Morgan.
 
In 1907, Wall Street was rocked by a severe bank panic. By this time many Americans were calling for reform of the banking system, including the creation, once again, of a central banking authority. The Aldrich-Vreeland Act of 1908 established the National Monetary Commission to search for a long-term solution to the nation’s banking and financial problems. The commission developed a banker-controlled plan, but many progressives attacked the plan, calling instead for the creation of a central bank under public, not banker, control.
 
President Woodrow Wilson inherited the banking problem when he was elected in 1912. He turned to Virginia Congressman Carter Glass, chairman of the House Committee on Banking and Finance, and H. Parker Willis, formerly a professor of economics at Washington and Lee University, for help in crafting a solution. Their plan developed into the Federal Reserve Act, which was adopted on December 23, 1913. The law called for establishing a decentralized central bank, but did not specify how this would be done. Instead, the Reserve Bank Organizing Committee, comprised of Treasury Secretary William McAdoo, Secretary of Agriculture David Houston, and Comptroller of the Currency John Skelton Williams, built a working institution by choosing 12 cities to host a regional Reserve Banks.
 
Under the provisions of the Federal Reserve Act, the Federal Reserve Board was composed of seven members, including five appointed members, the Secretary of the Treasury, who was ex-officio chairman of the board, and the Comptroller of the Currency. The original term of office was ten years, and the five original appointed members had terms of two, four, six, eight, and ten years, respectively. In 1922 the number of appointed members was increased to six, and in 1933 the term of office was increased to twelve years.
 
Following World War I, Benjamin Strong, head of the New York Federal Reserve Bank, recognized that gold no longer served as the central factor in controlling credit. Strong’s aggressive action to stem a recession in 1923 through a large purchase of government securities gave strong evidence of the power of open market operations to influence the availability of credit in the banking system. During the 1920s the Federal Reserve (a.k.a. the Fed) began using open market operations as a monetary policy tool.
 
During the 1920s, Congressman Glass warned that stock market speculation would lead to dire consequences. In October 1929 his predictions came true when the stock market crashed, and the nation fell into the worst depression in its history. From 1930 to 1933, nearly 10,000 banks failed. Many people blamed the Federal Reserve for failing to stem speculative lending that led to the crash, and some also argued that inadequate understanding of monetary economics kept the Federal Reserve from pursuing policies that could have lessened the depth of the Depression.
 
In March 1933, President Franklin Roosevelt declared a bank holiday. In reaction to the crisis, Congress passed the Banking Act of 1933, better known as the Glass-Steagall Act, calling for the separation of commercial and investment banking and requiring use of government securities as collateral for Federal Reserve notes. The act also established the Federal Deposit Insurance Corporation (FDIC), placed open market operations under the Federal Reserve, and required bank holding companies to be examined by the Federal Reserve. Also, Roosevelt recalled all gold and silver certificates, effectively ending gold and any other metallic standards that backed currency.
 
The Banking Act of 1935 called for further changes in the Federal Reserve’s structure, including changing the name of the Federal Reserve Board to the Board of Governors of the Federal Reserve System and creating the Federal Open Market Committee (FOMC) as a separate legal entity. The act also removed the Treasury Secretary and the Comptroller of the Currency from the Fed’s governing board, which would now have seven members, and set the terms of board members 14 years. The terms of the chairman and vice chairman of the board were set at four years.
 
Following World War II, the Employment Act added the goal of promoting maximum employment to the list of the Fed’s responsibilities. In 1956 the Bank Holding Company Act named the Fed as the regulator for bank holding companies owning more than one bank, and in 1978 the Humphrey-Hawkins Act required the Fed chairman to report to Congress twice annually on monetary policy goals and objectives.
 
The 1970s saw inflation skyrocket, as producer and consumer prices rose, oil prices soared and the federal deficit more than doubled. The Monetary Control Act of 1980 required the Fed to price its financial services competitively against private sector providers and to establish reserve requirements for all eligible financial institutions. The act marked the beginning of a period of modern banking industry reforms. Following its passage, interstate banking proliferated, and banks began offering interest-paying accounts and instruments to attract customers from brokerage firms.
 
Two months after Alan Greenspan took office as Fed chairman, the stock market crashed on October 19, 1987. In response, he ordered the Fed to issue a one-sentence statement before the start of trading on October 20 to help calm fears: “The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”
 
Throughout the 1990s, the Fed used monetary policy on a number of occasions, including the credit crunch of the early 1990s and the Russian default on government bonds, to keep potential financial problems from adversely affecting the economy. The decade was marked by generally declining inflation and the longest peacetime economic expansion in the country’s history.
 
In 1999 the Gramm-Leach-Bliley Act was passed, which essentially overturned the Glass-Steagall Act of 1933 and allowed banks to offer a menu of financial services, including investment banking and insurance sales. At the time of the scrapping of Glass-Steagall, Sen. Byron Dorgan (D-North Dakota) voiced a prescient warning: “I think we will look back in 10 years’ time and say we should not have done this.”
 
The 10-year economic expansion of the 1990s came to a close in March 2001 and was followed by a short, shallow recession ending in November 2001. In response to the bursting of the 1990s stock market bubble, the Fed lowered interest rates rapidly.
 
The effectiveness of the Federal Reserve as a central bank was put to the test on September 11, 2001, when the terrorist attacks in New York, Washington, and Pennsylvania disrupted US financial markets. The Fed issued a short statement reminiscent of its announcement in 1987: “The Federal Reserve System is open and operating. The discount window is available to meet liquidity needs.” In the days that followed, the Fed lowered interest rates and loaned more than $45 billion to financial institutions in order to provide stability to the U.S. economy. By the end
of September, Fed lending had returned to pre-September 11 levels and a potential liquidity crunch had been averted.
 
In 2008, the Fed faced its biggest financial crisis since the Great Depression, as Senator Dorgan’s earlier pronouncement came true. After years of giving out mortgages with variable rates and to individuals with limited resources, numerous banks and other financial institutions faced the risk of collapsing. Venerable entities like Fannie Mae and Freddie Mac and insurance giant AIG had to be rescued by the federal government, in part with help from the Federal Reserve. Officials in the Bush administration and, subsequently, the Obama administration negotiated with Congress to enact the largest bailout of financial institutions in U.S. history.
Historical Beginnings… The Federal Reserve (by Roger T. Johnson, Federal Reserve Bank of Boston) (pdf)
The Founding of the Fed (Federal Reserve Bank of New York)
The Federal Reserve - Its Origins, History & Current Strategy (by Wayne N. Krautkramer, GoldSeek.com)
Reserve Requirements: History, Current Practice, and Potential Reform (by Joshua N. Feinman, Federal Reserve) (pdf)
A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response (by Mark Carlson, Federal Reserve) (pdf)
10 Years Later, Looking at Repeal of Glass-Steagall (by Cyrus Sanati, New York Times)
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What it Does:

 

 

 

 

 

 

 

 

The Federal Reserve is a government-created banking system that wields enormous power over the financial system and economy of the United States. Sometimes thought of as a central or “national bank” (due to previous government-created institutions that held such a name), the Federal Reserve (or “Fed”) makes important decisions involving government securities and interest rates that affect private banks as well as other financial institutions on Wall Street. By affecting interest rates, the Fed can manipulate billions of dollars in business profits or losses and millions in worker employment and stock, bond or bank account values.

 
Although it is often referred to as being a single entity, the Federal Reserve is really made up of 12 Federal Reserve Districts with offices in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Overseeing these 12 district banks is the Federal Reserve’s seven-member Board of Governors, all of whom are appointed by the President and confirmed by the Senate and serve 14-year terms.
 
The most important policy-making body of the Federal Reserve System is the Federal Open Market Committee (FOMC). It is composed of the Fed’s seven governors, the president of the Federal Reserve Bank of New York, and four other Reserve Bank presidents, who serve on a rotating basis. By statute, the FOMC determines its own organization, and by tradition it elects the chairman of the Board of Governors as its chairman and the president of the New York Bank as its vice chairman.
 
The FOMC can affect monetary policy through the buying and selling of U.S. government securities, altering reserve requirements (the amount of funds that commercial banks must hold in reserve against deposits) and adjusting the discount rate (the interest rate charged to commercial banks). These tools can be used to tighten or expand the money supply. For example, if the FOMC wanted to control inflation, it could restrict the nation’s money supply by selling government securities and raising the amount of money that banks need to set aside for reserve requirements. Both of these actions would take money out of circulation. In theory, a smaller supply of money would lead to less spending, which would lead to lower prices.
 
The FOMC can also raise interest rates to help control inflation. By making money more expensive to borrow, consumers would be more likely to save money rather than spend it. This could also lead to lower prices.
 
In recent times, when the economy has appeared headed toward a recession, the Fed has lowered interest rates in the hope that it will spur investors to lend more money and thus produce more business activity and potentially more jobs in the economy. For instance, from September 2007 until June 2008, the Federal Reserve cut its federal funds rate (what banks charge each other for overnight loans) from 5.25% to 2%. Manipulating interest rates comes with risks, however, including the danger of causing inflation. It was this concern that caused Federal Reserve officials to end their rate cuts in June 2008.
 
The seven members of the Board of Governors may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two board members to be chairman and vice chairman for four-year terms. Only one member of the board may be selected from any one of the 12 Federal Reserve Districts. In making appointments, the President is directed by law to select a “fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country.” These aspects of selection are intended to ensure representation of regional interests and the interests of various sectors of the public.
 
The board sets reserve requirements and shares the responsibility with the Reserve Banks for discount rate policy. These two functions, along with open market operations, constitute the monetary policy tools of the Federal Reserve System.
 
In addition to monetary policy responsibilities, the Federal Reserve Board has regulatory and supervisory responsibilities over banks that are members of the system, bank holding companies, international banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member banks, and the U.S. activities of foreign-owned banks. The board also sets margin requirements, which limit the use of credit for purchasing or carrying securities.
 
In addition, the board is supposed to assure the “smooth functioning” and development of the nation’s payments system. Important details of this responsibility are included in Fedwire and the board’s Payment System Risk Policy.
 
Another area of board responsibility is the development and administration of regulations that implement major federal laws governing consumer credit, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act. More information on this regulatory function is made available through the Fed’s Consumer Information and Community Development sections.
 
The Fed also makes available a considerable amount of Economic Research and Data for consumers or researchers who want to delve into the micro and macro aspects of the monetary system.
FederalReserveEducation.Org (Federal Reserve)
Federal Reserve: The Enemy Of America (American Patriot Friends Network)
Debunking the Federal Reserve Conspiracy Theories (by Edward Flaherty, PublicEye.org)
 
From the Web Site of Board of Governors of the Federal Reserve System

 

 

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Where Does the Money Go:

 

 

 

 

 

 

 

 

Neither the Federal Reserve nor its Board of Governors provides information to the federal web site, USAspending.gov, regarding contractors for goods or services. The banking system does contract out, however, for help.

 
For instance, Unisys, Oracle, and Dutch-based Clear2Pay won a major contract in 2007 to help streamline the Federal Reserve Banks’ transition from paper checks to electronic check transactions. The contract was the largest ever for Clear2Pay, a company that employs 300 people worldwide.
 
Clear2Pay will deliver most of the products and the core technology for the new settlement system to the 12 Federal Reserve Banks, an order valued at 5 million euros. The changeover by the Federal Reserve is expected to generate more business for the companies, as private banks will have to adapt their existing interfaces with the Federal Reserve.
 
In 2001, the Federal Reserve Bank of Chicago hired the design firm SmithGroup to design and engineer a new $65-million bank branch in the Forest Park area, near Detroit, MI.
 
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Controversies:

 

 

 

 

 

 

 

 

Obama Proposes Expanded Fed Authority

Within months of taking office, President Barack Obama asked his Treasury Secretary, Timothy Geithner, to spearhead the administration’s solution for overhauling the financial industry.
 
A key component of the massive reform plan called for expanding the authority and role of the Federal Reserve in order to increase oversight of banks.
 
This proposal was met with strong opposition in Congress. For starters, some lawmakers who already didn’t trust the Fed claimed the national bank had too much power to begin with and had a reputation for being too secretive.
 
Additionally, critics contended that the Fed, which currently played a role in monitoring Wall Street and didn’t manage to stop the financial crisis, should not be given even greater responsibility to stop the next meltdown from occurring.
 
“Your plan puts a lot of faith in the Federal Reserve’s ability to spot risk and exercise its power to prevent the next crisis. However, if the Fed and other regulators had been doing their jobs and paying attention to what the banks and other firms were doing earlier this decade, they almost certainly could have prevented the mess,” Sen. Jim Bunning (R-Kentucky) told The Los Angeles Times. “What makes you think that the Fed will do better this time around?”
Geithner to Propose Vast Expansion Of U.S. Oversight of Financial System (by Binyamin Appelbaum and David Cho, Washington Post)
Federal Reserve To Gain Power Under Plan (by Patrice Hill, Washington Times)
Financial Regulatory Reform (New York Times)
 
Fed Chairman Warns of Recession to Prod Lawmakers
As lawmakers debated in September 2008 a $700 billion bailout plan pushed by the Bush administration, Federal Reserve Chairman Ben Bernanke warned reluctant lawmakers that they risked a recession, with higher unemployment and increased home foreclosures, if they didn’t act soon on the plan to rescue the financial industry. Bernanke described a situation where neither businesses nor consumers would be able to borrow money if something wasn’t done to address the crisis.
 
Some lawmakers were not cowed by Bernanke’s dire warnings. “I understand speed is important, but I’m far more interested in whether or not we get this right,” said Sen. Chris Dodd (D-Connecticut), presiding over a hearing by the Senate Banking Committee banking panel where Bernanke was testifying.
                                                     
Members of the Bush administration also lobbied Congressional Republicans to support the costly bailout. Some House Republicans were not convinced. “Just because God created the world in seven days doesn’t mean we have to pass this bill in seven days,” said Rep. Joe Barton (R-Texas).
 
Bernanke’s warning was much stronger than his early prediction in April before Congress, when the Fed’s top man hinted at the possibility of the American economy slipping into a recession. That was before a series of financial crises unfolded involving mortgage lenders and major financial houses on Wall Street.
Bernanke: Recession more likely without bailout (By Julie Hirschfeld Davis and Jeannine Aversa, Associated Press)
Bernanke Nods at Possibility of a Recession (by Steven Weisman, New York Times)
 
Fed Bails Out AIG
Fearing a financial crisis worldwide, the Federal Reserve announced on September 16, 2008, that it would loan $85 billion to the troubled insurance giant American International Group (AIG), giving the federal government control of the company. The move by the Fed was seen as the most radical intervention in private business in the central bank’s history.
 
The decision came only two weeks after the Treasury Department took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac.
 
Fed chairman Ben Bernanke appeared grim while announcing the controversial decision. The bailout could prove costly because it effectively puts taxpayer money at risk while protecting bad investments made by AIG and other institutions it does business with. But Bernanke worried that if the Fed didn’t step in and rescue AIG, a collapse by the company would send shockwaves across the international financial world.
 
AIG was an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required AIG to cover losses suffered by the buyers in the event the securities defaulted. It meant AIG was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.
 
If AIG had collapsed—and been unable to pay all of its insurance claims—institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with AIG securities, could have been hurt, too.
Fed’s $85 Billion Loan Rescues Insurer (by Edmund L. Andrews, Michael J. de la Merced, Mary Williams Walsh, New York Times)
 
Fed Balks at Helping Lehman Brothers, Merrill Lynch
Unlike Bear Stearns and AIG, the Federal Reserve chose not to help other leading financial institutions troubled by the mortgage crisis. Officials with the 158-year-old firm Lehman Brothers sought assistance from the Fed, but were turned down. Consequently, Lehman Brothers was forced into bankruptcy. Similarly, Merrill Lynch was forced to sell itself to Bank of America. Some argued that the Fed was correct in not stepping in to help Lehman Brothers, arguing that the firm had refused to take steps to solidify its balance sheets. “Unlike Bear Stearns six months ago, [Lehman Brothers] has had plenty of time to put its own house in order, and the moral hazard embedded in a government-sponsored rescue would have sent the wrong message to Wall Street,” wrote the Irish Times.
Lehman Files for Bankruptcy; Merrill Is Sold (by Jenny Anderson, Eric Dash, and Andrew Ross Sorkin, New York Times)
 
Bernanke Embarrassment: International Audit of American Finances
Officials with the International Monetary Fund (IMF) have informed Fed Chairman Ben Bernanke that the organization wants to do something unheard of: look at America’s books. The IMF is seeking to perform a general examination of the U.S. financial system. Never before has the IMF—which the U.S. helped start and has wielded considerable control over—tried to conduct its Financial Sector Assessment Program (FSAP) in the United States. “It is nothing less than an X-ray of the entire US financial system,” according to an article in Der Spiegel.
 
Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members—but never the United States—have already “endured this painful procedure.” As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team.
The Shrinking Influence of the US Federal Reserve (by Gabor Steingart, Spiegel online)
 
Fed Chief Facing Increasing Dissent
In addition to dealing with the financial crisis threatening to bring down the American financial system and cause a recession, Fed Chairman Ben Bernanke has been facing increasing dissent within the Federal Reserve. The Federal Open Market Committee (FOMC) is the key decision-making body within the Fed, and a group of “inflation hawks” have pressed for increases in interest rates to prevent prices from getting higher. The committee, made up of Fed governors and regional bank presidents, has voted on interest rates eight times since the end of September 2007. All featured at least one dissenting vote—highly unusual in the Fed’s history. At least six of the 12 bank presidents (of whom five vote in any given year) have expressed discomfort with the current, low level of rates. Prior to the Fed’s August 5, 2008, policy meeting, three banks requested a quarter-point increase in the Fed’s discount rate. They did not get it.
When hawks cry (The Economist)
The Shrinking Influence of the US Federal Reserve (by Gabor Steingart, Der Spiegel)
 
Fed Criticized for Helping Wall Street, Not Main Street
Following the Federal Reserve’s decision to help JPMorgan Chase acquire Bear Stearns, Fed Chairman Ben Bernanke was subjected to complaints from Democrats and Republicans claiming that the Bush administration was ready to throw a lifeline to Wall Street, but not to ordinary homeowners suffering from the housing crisis. Bernanke argued that the public’s best interests were foremost in his mind when he moved to save Bear Stearns from collapse. “That’s why we took that action, and I believe that was the benefit of that action—not to help individual Wall Street people.”
 
But Democratic lawmakers wondered if the move justified bolder steps by the federal government to help homeowners at risk of foreclosure. “If we’re going to be a federal backstop to the financial institutions, should not we also be there as a financial backstop to these people that are losing their homes?” asked Rep. Carolyn Maloney (D-New York), who heads the House Financial Services Committee’s sub-panel on financial institutions.
 
Sen. Sam Brownback (R-Kansas) echoed the concerns of some conservatives in Congress that the Fed’s move recklessly exposed taxpayers. “I am concerned when the taxpayer’s money becomes the ‘skin in the game’ to rescue supposedly sophisticated investment and commercial banks from their own poor decision-making,” he said.
 
Fed Rescues Bear Stearns
In March 2008, the Federal Reserve approved a $30 billion credit line to engineer the takeover of Bear Stearns, a longtime financial powerhouse on Wall Street. The Fed also announced an open-ended lending program for the biggest investment firms on Wall Street, and it lowered the rate for borrowing from the Fed’s so-called discount window by a quarter of a percentage point, to 3.25%.
 
The moves amounted to a sweeping and unprecedented attempt by the Federal Reserve to rescue the nation’s financial markets from what officials feared could be a chain reaction of defaults. The Fed approved a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns, which had been teetering near collapse because of its deepening losses in the mortgage market. In a highly unusual maneuver, Fed officials said they would secure the loan by effectively taking over the huge Bear Stearns portfolio and exercising control over all major decisions in order to minimize the central bank’s own risk.
 
Some analysts said the Fed’s decision averted a potential “Chernobyl” meltdown of the global finance system. “If the Fed had not stepped in, we would have had pandemonium,” said James Melcher, president of the New York hedge fund Balestra Capital.
 
As it turned out, the Fed’s bold move did not prevent larger bailouts by the U.S. government of mortgage giants Fannie Mae and Freddie Mac, the Fed’s later rescue of insurance titan AIG, or the $700 billion rescue that the Bush administration proposed in September 2008.
US Federal Reserve bails out Bear Stearns (by Stephen Foley, The Independent)
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Suggested Reforms:

 

 

 

 

 

 

 

 

Bernanke's Reform Agenda

While speaking before the Council on Foreign Relations in March 2009, Federal Reserve Chairman Ben Bernanke called for system-wide overhaul of U.S. financial regulation designed to reduce cyclical booms and busts in financial markets.
 
With the implication that the Federal Reserve would take on a greater oversight role, Bernanke proposed four major changes.
 
One called for ways to minimize the impact of huge financial institutions on the financial markets in the event that so-called too-big-to-fail banks teeter like they did during the 2007-2008 crisis. The Fed chairman said these banks must be subjected to more rigorous supervision to prevent them from taking excessive risk.
 
Bernanke also advocated for ways to bolster money market mutual funds by imposing tighter restrictions on the financial instruments that money markets can invest in or through a limited system of insurance for certain funds; reviewing regulations and accounting rules to ensure that institutions have sufficient funds set aside; and the creation of a financial "supercop" authority.
 
Following the release of Bernanke’s reforms, Congress adopted sweeping legislation intended to strengthen Washington’s role in protecting markets and consumers. The Dodd-Frank legislation included a controversial provision known as the Volcker rule (named after former Fed Chairman Paul Volcker), which would restrict banks from trading with their own money.
 
The Fed was supposed to craft regulations pertaining to the Volcker rule by July 2012. However, Bernanke announced in February that it was unlikely the Fed would meet this deadline. Banks are opposed to this restriction, leading to speculation that the Fed might be considering less stringent measures for the rule.
Bernanke: Volcker Rule Won't Be Set By July (by Victoria McGrane, Wall Street Journal)
Bernanke: Financial Regulatory Overhaul Needed (by Jeannine Aversa, Associated Press)
 
New Fed Regulations to Reign in Credit Card Industry
Prodded by Congress and consumer advocates, the Federal Reserve, in December 2008, approved new regulations to offer consumers better protections from credit card companies. As of August that year, the Fed had received a record 56,000 comments via email and regular mail over its proposed changes to how credit card companies manage consumers’ accounts.
 
The Fed’s rules, among other things, specify when credit card issuers can increase interest rates on existing balances, keep them from calculating finance charges based on the average of balances over two cycles even if part of the debt has been repaid, and prohibit late fees on customers who were not given a reasonable amount of time to pay. The regulationsl also regulates overdraft protection on deposit accounts, requiring banks to let customers opt out of the service before assessing fees. But it does not, in all cases, ban the so-called universal default—the raising of a person’s interest rate if he or she is late on an unrelated debt. It also does not address many arbitrarily high credit card fees.
 
The Fed’s regulations came as members of Congress introduced legislation to take action against predatory credit card companies. The House Financial Services Committee moved a “Credit Cardholders' Bill of Rights” out of committee in July 2008. The measure was designed to prohibit unexpected increases in the rates charged on pre-existing credit card balances, among other things. It passed with a majority vote in the House, but never came up for a vote in the Senate.
 
The bill was reintroduced in the 111th Congress as the Credit CARD Act of 2009. An amended version was passed in both houses and signed into law by President Barack Obama on May 22. It went into effect nine months later, on February 22, 2010.
What the New Credit Card Means for You (by Connie Prater, CreditCards.com)
Credit Card Reform Legislation Time Line (by Tyler Metzger, CreditCards.com)
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Debate:

 

 

 

 

 

 

 

 

The Fed: Give it More Power, or Kill it?

The current financial crisis consuming Washington D.C., and Wall Street has ignited diametrical viewpoints on what should be done with the Federal Reserve. For some, including members of the Bush administration, the time is now to expand the powers of the Fed to help the U.S. government better deal with financial crises in a timely manner. For others in Washington, the time has come to abolish the Fed entirely, owing to the central bank’s consistent failures to bring security to the American economy.
 
Expand the Fed
In the wake of the Bear Stearns bailout, U.S. Treasury Secretary Henry Paulson proposed a number of key changes for lawmakers to consider about the U.S. financial system. Among Paulson’s suggestions was giving the Federal Reserve power to regulate virtually the entire financial industry. That change, argued Treasury officials, would make the Fed the “first responder” to a potential financial crisis. Currently, several agencies and commissions have oversight over various parts of the industry, but none has the broad authority. Paulson also suggested giving the Federal Reserve authority to look at the financial status of any institution that could affect market stability. For Paulson and others, the best thing Washington could do is make the Fed even more powerful than it already is.
 
Abolish the Fed
In contrast to Paulson’s effort to expand the ability of the Federal Reserve, a longtime congressman and presidential candidate wants to do just the opposite: eliminate the Fed. Rep. Ron Paul (R-Texas), who ran for the Republican nomination for President in 2012 and 2008, believes the Fed has been nothing but trouble for America and needs to be shut down. In a speech before Congress, Paul said: “Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

“From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial ‘boom’ followed by a recession or depression when the Fed-created bubble bursts.”

Paul argues that by abolishing the Fed, the U.S. will finally have “a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings,” says Paul, “should be enthusiastic supporters of this legislation.”
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Former Directors:

 

 

 

 

 

 

 

 

Charles S. Hamlin Aug. 10, 1914-Aug. 9, 1916

W.P.G. Harding Aug. 10, 1916-Aug. 9, 1922
Daniel R. Crissinger May 1, 1923-Sept. 15, 1927
Roy A. Young Oct. 4, 1927-Aug. 31, 1930
Eugene Meyer Sept. 16, 1930-May 10, 1933
Eugene R. Black May 19, 1933-Aug. 15, 1934
Marriner S. Eccles Nov. 15, 1934-Jan. 31, 1948
Thomas B. McCabe Apr. 15, 1948-Mar. 31, 1951
William McChesney Martin, Jr. Apr. 2, 1951-Jan. 31, 1970
Arthur F. Burns Feb. 1, 1970-Jan. 31, 1978
G. William Miller Mar. 8, 1978-Aug. 6, 1979
Paul A. Volcker Aug. 6, 1979-Aug. 11, 1987
Alan Greenspan Aug. 11, 1987-Jan. 31, 2006http://federalreserve.gov/bios/boardmembership.htm - fn2
 
 
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Gold 5 years ago
The Creature From Jekyll Island (by G. Edward Griffin) http://www.youtube.com/watch?v=lu_VqX6J93k

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Founded: 1913
Annual Budget: $533 million in new obligations (FY 2012 Estimate)
Employees: 2,331 Board positions; 17,979 employees at Fed Banks, FRIT and OEB (FY 2011)
Official Website: http://federalreserve.gov/
Board of Governors of the Federal Reserve System
Yellen, Janet
Chair

On February 3, 2014, Janet Yellen was sworn in as chair of the Federal Reserve. In taking over from Ben Bernanke, Yellen became the first woman to lead the institution that controls much of the financial system of the United States. She was nominated to the post on October 9, 2013 by President Barack Obama.

 

Yellen was born August 13, 1946, in Brooklyn, New York. She graduated from Fort Hamilton High School in Brooklyn and went on to attend Brown University. She received a B.A. in economics from that school in 1967. Yellen then moved to Yale University, from which she earned a Ph.D. in economics in 1971.

 

She became an assistant professor at Harvard, and taught there from 1971 to 1976. While at Harvard, one of her students was Lawrence Summers, who later became Secretary of the Treasury under President Bill Clinton and director of the National Economic Council under Obama.

 

Yellen then moved to a job at the Fed, becoming an economist in its division of international finance. While there, she met fellow economist George Akerlof, whom she married. Akerlof went on to win the 2001 Nobel Prize in economics, sharing it with A. Michael Spence and Joseph Stiglitz. Stiglitz was one of Yellen’s teachers at Yale.

 

In 1978, Yellen moved to Great Britain, teaching at the London School of Economics. She returned to the United States in 1980, accepting a post at the University of California Berkeley. Berkeley became her academic home from then on, taking leaves to accept government posts, but returning to the university when out of government. One of Yellen’s major works at Berkeley was co-authorship of a study dealing with East Germany’s integration into the German economy upon the reunification of the country. In 1993 Yellen endorsed the North American Free Trade Agreement (NAFTA).

 

Yellen took a leave from Berkeley in 1994, serving on the Federal Reserve System’s board of governors until 1997. At the time, her nomination was criticized by some because of Yellen’s lack of commercial banking experience. Then, Clinton appointed Yellen as chair of his Council of Economic Advisors, succeeding her old teacher Stiglitz. She served there until 1999, when she returned to California.

 

In 2004, Yellen was made president of the Federal Reserve Bank in San Francisco. She was one of the first to herald the coming financial crisis in 2007, urging tightening of rules for making home loans. She later acknowledged, however, that the San Francisco Fed didn’t do all it could have to ameliorate the crash, particularly in respect to Countrywide Financial’s toxic loan portfolio.

 

Yellen left San Francisco in 2010, when Obama nominated her to be vice chair of the Fed. She was sworn into that post in October of that year. There, she urged the Fed to maintain ultra-low interest rates and to continue bond purchases that would help spur economic growth during the slow recovery.

 

When Bernanke announced his departure as Fed chair, Yellen’s former student Summers was seen as a front-runner to fill the post. However, questions about Summers’ temperament persisted, and Summers withdrew from consideration and Obama nominated Yellen to the post.

 

Yellen and Akerlof have a son, Robert Akerlof, who has followed in his parents’ footsteps. He is an economist who teaches at the University of Warwick in Coventry, England. Yellen’s passions include stamp collecting and going on holiday with stacks of economic books for summer reading.

-Steve Straehley

 

To Learn More:

Janet Yellen: An Updated Reading List (by Sarah Wheaton, New York Times)

Janet Yellen Urged Glass-Steagall Repeal And Social Security Cuts, Supported NAFTA (by Zach Carter, Huffington Post)

Fed Chair Candidate Could Bring Brown to D.C. (by Brittany Nieves, Brown Daily Herald)

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Bernanke, Ben
Previous Chairman
Born in Augusta, Georgia, in 1953, and raised in Dillon, South Carolina, Ben S. Bernanke has served as the chairman of the Federal Reserve since February 1, 2006. Bernanke also serves as chairman of the Federal Open Market Committee, the Federal Reserve’s principal monetary policymaking body. His term as chairman of the Federal Reserve expires January 31, 2010.  
 
Bernanke received a BA in economics in 1975 from Harvard University (summa cum laude) and a PhD in economics in 1979 from the Massachusetts Institute of Technology.
 
Bernanke was an assistant professor of economics (1979-83) and an associate professor of economics (1983-85) at the Graduate School of Business at Stanford University. In 1985 he became a professor of economics and public affairs at Princeton. His teaching career also included serving as a visiting professor of economics at the Massachusetts Institute of Technology (1989-90) and at New York University (1993).
 
From 1994 to 1996, Bernanke was the Class of 1926 Professor of Economics and Public Affairs at Princeton University. He was the Howard Harrison and Gabrielle Snyder Beck Professor of Economics and Public Affairs and chair of the Economics Department at the university from 1996 to 2002.
 
Bernanke was appointed to the Board of Governors of the Federal Reserve System in 2002 and served until 2005. From June 2005 to January 2006 he was chairman of the President’s Council of Economic Advisers.
 
Nernanke’s prior assignments with the Federal Reserve included serving as a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).
 
Bernanke has published many articles on a wide variety of economic issues, including monetary policy and macroeconomics, and he is the author of several scholarly books and two textbooks. 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. In July 2001, he was appointed editor of the American Economic Review.
 
Ben S. Bernanke Profile (Washington Post)
The Scary Side of Ben Bernanke (by John Tamny, National Review)
 
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Overview:

The Federal Reserve (the “Fed”) is the nation’s central bank. A quasi-public institution founded by the U.S. government, the Fed wields enormous power over the financial system and the economy of the United States. Consisting of a dozen regional banks and led by a presidentially-appointed board, the Fed makes decisions that can raise or lower interest rates, increase or decrease the money supply and regulate the activities of banks and other financial institutions, among other things. Since its founding in the early 20th Century, the Fed has been scrutinized for its many controversial decisions. During its early years, it was faulted for not doing more to prevent the Great Depression of the 1930s. In 2008, the Fed has made several controversial decisions as the nation’s struggles with the greatest threat to the U.S. financial system since the Stock Market crash of 1929. The Fed has moved to prevent certain major financial institutions from going bankrupt, while allowing others to falter and be sold to rivals. Perspectives on the Federal Reserve range from helping it grow even more powerful to abolishing it altogether.

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History:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The United States’ first paper currency was known as “continentals,” printed to finance the American Revolution. The currency was printed in such quantities that it led to inflation, and the American people soon lost faith in the notes.

 
At the urging of the federal government’s first Treasury Secretary, Alexander Hamilton, Congress established the First Bank of the United States, headquartered in Philadelphia, in 1791. It was the largest corporation in the country and was dominated by big banking and money interests. Many ordinary Americans were uncomfortable with the idea of a large, powerful central bank, and so were numerous lawmakers. When the bank’s 20-year charter expired in 1811, Congress refused to renew it.
 
A Second Bank of the United States won approval in Congress five years later, in 1816. But like the first bank, this second bank had its detractors, including President Andrew Jackson, whose opposition helped kill the bank when its charter expired in 1836.
 
For the next several decades, state-chartered banks and unchartered “free banks” popped up around the country and issued their own bank notes, redeemable in gold or silver. Banks also began offering demand deposits (the forerunner to modern checking accounts) to bolster banking opportunities for citizens.
 
During the Civil War, the National Banking Act of 1863 was passed, providing for
nationally-chartered banks whose circulating notes had to be backed by U.S.
government securities. An amendment to the act required taxation on state bank
notes but not national bank notes, effectively creating a uniform currency for the
nation. Despite taxation on their notes, state banks continued to flourish due to the
growing popularity of demand deposits.
 
Although the National Banking Act of 1863 established some measure of currency
stability for the country, bank runs and financial panics plagued the economy. In 1893 a banking panic triggered the worst depression the United States had seen up to that point, and the economy stabilized only after the intervention of financial mogul J.P. Morgan.
 
In 1907, Wall Street was rocked by a severe bank panic. By this time many Americans were calling for reform of the banking system, including the creation, once again, of a central banking authority. The Aldrich-Vreeland Act of 1908 established the National Monetary Commission to search for a long-term solution to the nation’s banking and financial problems. The commission developed a banker-controlled plan, but many progressives attacked the plan, calling instead for the creation of a central bank under public, not banker, control.
 
President Woodrow Wilson inherited the banking problem when he was elected in 1912. He turned to Virginia Congressman Carter Glass, chairman of the House Committee on Banking and Finance, and H. Parker Willis, formerly a professor of economics at Washington and Lee University, for help in crafting a solution. Their plan developed into the Federal Reserve Act, which was adopted on December 23, 1913. The law called for establishing a decentralized central bank, but did not specify how this would be done. Instead, the Reserve Bank Organizing Committee, comprised of Treasury Secretary William McAdoo, Secretary of Agriculture David Houston, and Comptroller of the Currency John Skelton Williams, built a working institution by choosing 12 cities to host a regional Reserve Banks.
 
Under the provisions of the Federal Reserve Act, the Federal Reserve Board was composed of seven members, including five appointed members, the Secretary of the Treasury, who was ex-officio chairman of the board, and the Comptroller of the Currency. The original term of office was ten years, and the five original appointed members had terms of two, four, six, eight, and ten years, respectively. In 1922 the number of appointed members was increased to six, and in 1933 the term of office was increased to twelve years.
 
Following World War I, Benjamin Strong, head of the New York Federal Reserve Bank, recognized that gold no longer served as the central factor in controlling credit. Strong’s aggressive action to stem a recession in 1923 through a large purchase of government securities gave strong evidence of the power of open market operations to influence the availability of credit in the banking system. During the 1920s the Federal Reserve (a.k.a. the Fed) began using open market operations as a monetary policy tool.
 
During the 1920s, Congressman Glass warned that stock market speculation would lead to dire consequences. In October 1929 his predictions came true when the stock market crashed, and the nation fell into the worst depression in its history. From 1930 to 1933, nearly 10,000 banks failed. Many people blamed the Federal Reserve for failing to stem speculative lending that led to the crash, and some also argued that inadequate understanding of monetary economics kept the Federal Reserve from pursuing policies that could have lessened the depth of the Depression.
 
In March 1933, President Franklin Roosevelt declared a bank holiday. In reaction to the crisis, Congress passed the Banking Act of 1933, better known as the Glass-Steagall Act, calling for the separation of commercial and investment banking and requiring use of government securities as collateral for Federal Reserve notes. The act also established the Federal Deposit Insurance Corporation (FDIC), placed open market operations under the Federal Reserve, and required bank holding companies to be examined by the Federal Reserve. Also, Roosevelt recalled all gold and silver certificates, effectively ending gold and any other metallic standards that backed currency.
 
The Banking Act of 1935 called for further changes in the Federal Reserve’s structure, including changing the name of the Federal Reserve Board to the Board of Governors of the Federal Reserve System and creating the Federal Open Market Committee (FOMC) as a separate legal entity. The act also removed the Treasury Secretary and the Comptroller of the Currency from the Fed’s governing board, which would now have seven members, and set the terms of board members 14 years. The terms of the chairman and vice chairman of the board were set at four years.
 
Following World War II, the Employment Act added the goal of promoting maximum employment to the list of the Fed’s responsibilities. In 1956 the Bank Holding Company Act named the Fed as the regulator for bank holding companies owning more than one bank, and in 1978 the Humphrey-Hawkins Act required the Fed chairman to report to Congress twice annually on monetary policy goals and objectives.
 
The 1970s saw inflation skyrocket, as producer and consumer prices rose, oil prices soared and the federal deficit more than doubled. The Monetary Control Act of 1980 required the Fed to price its financial services competitively against private sector providers and to establish reserve requirements for all eligible financial institutions. The act marked the beginning of a period of modern banking industry reforms. Following its passage, interstate banking proliferated, and banks began offering interest-paying accounts and instruments to attract customers from brokerage firms.
 
Two months after Alan Greenspan took office as Fed chairman, the stock market crashed on October 19, 1987. In response, he ordered the Fed to issue a one-sentence statement before the start of trading on October 20 to help calm fears: “The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”
 
Throughout the 1990s, the Fed used monetary policy on a number of occasions, including the credit crunch of the early 1990s and the Russian default on government bonds, to keep potential financial problems from adversely affecting the economy. The decade was marked by generally declining inflation and the longest peacetime economic expansion in the country’s history.
 
In 1999 the Gramm-Leach-Bliley Act was passed, which essentially overturned the Glass-Steagall Act of 1933 and allowed banks to offer a menu of financial services, including investment banking and insurance sales. At the time of the scrapping of Glass-Steagall, Sen. Byron Dorgan (D-North Dakota) voiced a prescient warning: “I think we will look back in 10 years’ time and say we should not have done this.”
 
The 10-year economic expansion of the 1990s came to a close in March 2001 and was followed by a short, shallow recession ending in November 2001. In response to the bursting of the 1990s stock market bubble, the Fed lowered interest rates rapidly.
 
The effectiveness of the Federal Reserve as a central bank was put to the test on September 11, 2001, when the terrorist attacks in New York, Washington, and Pennsylvania disrupted US financial markets. The Fed issued a short statement reminiscent of its announcement in 1987: “The Federal Reserve System is open and operating. The discount window is available to meet liquidity needs.” In the days that followed, the Fed lowered interest rates and loaned more than $45 billion to financial institutions in order to provide stability to the U.S. economy. By the end
of September, Fed lending had returned to pre-September 11 levels and a potential liquidity crunch had been averted.
 
In 2008, the Fed faced its biggest financial crisis since the Great Depression, as Senator Dorgan’s earlier pronouncement came true. After years of giving out mortgages with variable rates and to individuals with limited resources, numerous banks and other financial institutions faced the risk of collapsing. Venerable entities like Fannie Mae and Freddie Mac and insurance giant AIG had to be rescued by the federal government, in part with help from the Federal Reserve. Officials in the Bush administration and, subsequently, the Obama administration negotiated with Congress to enact the largest bailout of financial institutions in U.S. history.
Historical Beginnings… The Federal Reserve (by Roger T. Johnson, Federal Reserve Bank of Boston) (pdf)
The Founding of the Fed (Federal Reserve Bank of New York)
The Federal Reserve - Its Origins, History & Current Strategy (by Wayne N. Krautkramer, GoldSeek.com)
Reserve Requirements: History, Current Practice, and Potential Reform (by Joshua N. Feinman, Federal Reserve) (pdf)
A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response (by Mark Carlson, Federal Reserve) (pdf)
10 Years Later, Looking at Repeal of Glass-Steagall (by Cyrus Sanati, New York Times)
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What it Does:

 

 

 

 

 

 

 

 

The Federal Reserve is a government-created banking system that wields enormous power over the financial system and economy of the United States. Sometimes thought of as a central or “national bank” (due to previous government-created institutions that held such a name), the Federal Reserve (or “Fed”) makes important decisions involving government securities and interest rates that affect private banks as well as other financial institutions on Wall Street. By affecting interest rates, the Fed can manipulate billions of dollars in business profits or losses and millions in worker employment and stock, bond or bank account values.

 
Although it is often referred to as being a single entity, the Federal Reserve is really made up of 12 Federal Reserve Districts with offices in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Overseeing these 12 district banks is the Federal Reserve’s seven-member Board of Governors, all of whom are appointed by the President and confirmed by the Senate and serve 14-year terms.
 
The most important policy-making body of the Federal Reserve System is the Federal Open Market Committee (FOMC). It is composed of the Fed’s seven governors, the president of the Federal Reserve Bank of New York, and four other Reserve Bank presidents, who serve on a rotating basis. By statute, the FOMC determines its own organization, and by tradition it elects the chairman of the Board of Governors as its chairman and the president of the New York Bank as its vice chairman.
 
The FOMC can affect monetary policy through the buying and selling of U.S. government securities, altering reserve requirements (the amount of funds that commercial banks must hold in reserve against deposits) and adjusting the discount rate (the interest rate charged to commercial banks). These tools can be used to tighten or expand the money supply. For example, if the FOMC wanted to control inflation, it could restrict the nation’s money supply by selling government securities and raising the amount of money that banks need to set aside for reserve requirements. Both of these actions would take money out of circulation. In theory, a smaller supply of money would lead to less spending, which would lead to lower prices.
 
The FOMC can also raise interest rates to help control inflation. By making money more expensive to borrow, consumers would be more likely to save money rather than spend it. This could also lead to lower prices.
 
In recent times, when the economy has appeared headed toward a recession, the Fed has lowered interest rates in the hope that it will spur investors to lend more money and thus produce more business activity and potentially more jobs in the economy. For instance, from September 2007 until June 2008, the Federal Reserve cut its federal funds rate (what banks charge each other for overnight loans) from 5.25% to 2%. Manipulating interest rates comes with risks, however, including the danger of causing inflation. It was this concern that caused Federal Reserve officials to end their rate cuts in June 2008.
 
The seven members of the Board of Governors may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two board members to be chairman and vice chairman for four-year terms. Only one member of the board may be selected from any one of the 12 Federal Reserve Districts. In making appointments, the President is directed by law to select a “fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country.” These aspects of selection are intended to ensure representation of regional interests and the interests of various sectors of the public.
 
The board sets reserve requirements and shares the responsibility with the Reserve Banks for discount rate policy. These two functions, along with open market operations, constitute the monetary policy tools of the Federal Reserve System.
 
In addition to monetary policy responsibilities, the Federal Reserve Board has regulatory and supervisory responsibilities over banks that are members of the system, bank holding companies, international banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member banks, and the U.S. activities of foreign-owned banks. The board also sets margin requirements, which limit the use of credit for purchasing or carrying securities.
 
In addition, the board is supposed to assure the “smooth functioning” and development of the nation’s payments system. Important details of this responsibility are included in Fedwire and the board’s Payment System Risk Policy.
 
Another area of board responsibility is the development and administration of regulations that implement major federal laws governing consumer credit, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act. More information on this regulatory function is made available through the Fed’s Consumer Information and Community Development sections.
 
The Fed also makes available a considerable amount of Economic Research and Data for consumers or researchers who want to delve into the micro and macro aspects of the monetary system.
FederalReserveEducation.Org (Federal Reserve)
Federal Reserve: The Enemy Of America (American Patriot Friends Network)
Debunking the Federal Reserve Conspiracy Theories (by Edward Flaherty, PublicEye.org)
 
From the Web Site of Board of Governors of the Federal Reserve System

 

 

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Where Does the Money Go:

 

 

 

 

 

 

 

 

Neither the Federal Reserve nor its Board of Governors provides information to the federal web site, USAspending.gov, regarding contractors for goods or services. The banking system does contract out, however, for help.

 
For instance, Unisys, Oracle, and Dutch-based Clear2Pay won a major contract in 2007 to help streamline the Federal Reserve Banks’ transition from paper checks to electronic check transactions. The contract was the largest ever for Clear2Pay, a company that employs 300 people worldwide.
 
Clear2Pay will deliver most of the products and the core technology for the new settlement system to the 12 Federal Reserve Banks, an order valued at 5 million euros. The changeover by the Federal Reserve is expected to generate more business for the companies, as private banks will have to adapt their existing interfaces with the Federal Reserve.
 
In 2001, the Federal Reserve Bank of Chicago hired the design firm SmithGroup to design and engineer a new $65-million bank branch in the Forest Park area, near Detroit, MI.
 
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Controversies:

 

 

 

 

 

 

 

 

Obama Proposes Expanded Fed Authority

Within months of taking office, President Barack Obama asked his Treasury Secretary, Timothy Geithner, to spearhead the administration’s solution for overhauling the financial industry.
 
A key component of the massive reform plan called for expanding the authority and role of the Federal Reserve in order to increase oversight of banks.
 
This proposal was met with strong opposition in Congress. For starters, some lawmakers who already didn’t trust the Fed claimed the national bank had too much power to begin with and had a reputation for being too secretive.
 
Additionally, critics contended that the Fed, which currently played a role in monitoring Wall Street and didn’t manage to stop the financial crisis, should not be given even greater responsibility to stop the next meltdown from occurring.
 
“Your plan puts a lot of faith in the Federal Reserve’s ability to spot risk and exercise its power to prevent the next crisis. However, if the Fed and other regulators had been doing their jobs and paying attention to what the banks and other firms were doing earlier this decade, they almost certainly could have prevented the mess,” Sen. Jim Bunning (R-Kentucky) told The Los Angeles Times. “What makes you think that the Fed will do better this time around?”
Geithner to Propose Vast Expansion Of U.S. Oversight of Financial System (by Binyamin Appelbaum and David Cho, Washington Post)
Federal Reserve To Gain Power Under Plan (by Patrice Hill, Washington Times)
Financial Regulatory Reform (New York Times)
 
Fed Chairman Warns of Recession to Prod Lawmakers
As lawmakers debated in September 2008 a $700 billion bailout plan pushed by the Bush administration, Federal Reserve Chairman Ben Bernanke warned reluctant lawmakers that they risked a recession, with higher unemployment and increased home foreclosures, if they didn’t act soon on the plan to rescue the financial industry. Bernanke described a situation where neither businesses nor consumers would be able to borrow money if something wasn’t done to address the crisis.
 
Some lawmakers were not cowed by Bernanke’s dire warnings. “I understand speed is important, but I’m far more interested in whether or not we get this right,” said Sen. Chris Dodd (D-Connecticut), presiding over a hearing by the Senate Banking Committee banking panel where Bernanke was testifying.
                                                     
Members of the Bush administration also lobbied Congressional Republicans to support the costly bailout. Some House Republicans were not convinced. “Just because God created the world in seven days doesn’t mean we have to pass this bill in seven days,” said Rep. Joe Barton (R-Texas).
 
Bernanke’s warning was much stronger than his early prediction in April before Congress, when the Fed’s top man hinted at the possibility of the American economy slipping into a recession. That was before a series of financial crises unfolded involving mortgage lenders and major financial houses on Wall Street.
Bernanke: Recession more likely without bailout (By Julie Hirschfeld Davis and Jeannine Aversa, Associated Press)
Bernanke Nods at Possibility of a Recession (by Steven Weisman, New York Times)
 
Fed Bails Out AIG
Fearing a financial crisis worldwide, the Federal Reserve announced on September 16, 2008, that it would loan $85 billion to the troubled insurance giant American International Group (AIG), giving the federal government control of the company. The move by the Fed was seen as the most radical intervention in private business in the central bank’s history.
 
The decision came only two weeks after the Treasury Department took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac.
 
Fed chairman Ben Bernanke appeared grim while announcing the controversial decision. The bailout could prove costly because it effectively puts taxpayer money at risk while protecting bad investments made by AIG and other institutions it does business with. But Bernanke worried that if the Fed didn’t step in and rescue AIG, a collapse by the company would send shockwaves across the international financial world.
 
AIG was an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required AIG to cover losses suffered by the buyers in the event the securities defaulted. It meant AIG was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.
 
If AIG had collapsed—and been unable to pay all of its insurance claims—institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with AIG securities, could have been hurt, too.
Fed’s $85 Billion Loan Rescues Insurer (by Edmund L. Andrews, Michael J. de la Merced, Mary Williams Walsh, New York Times)
 
Fed Balks at Helping Lehman Brothers, Merrill Lynch
Unlike Bear Stearns and AIG, the Federal Reserve chose not to help other leading financial institutions troubled by the mortgage crisis. Officials with the 158-year-old firm Lehman Brothers sought assistance from the Fed, but were turned down. Consequently, Lehman Brothers was forced into bankruptcy. Similarly, Merrill Lynch was forced to sell itself to Bank of America. Some argued that the Fed was correct in not stepping in to help Lehman Brothers, arguing that the firm had refused to take steps to solidify its balance sheets. “Unlike Bear Stearns six months ago, [Lehman Brothers] has had plenty of time to put its own house in order, and the moral hazard embedded in a government-sponsored rescue would have sent the wrong message to Wall Street,” wrote the Irish Times.
Lehman Files for Bankruptcy; Merrill Is Sold (by Jenny Anderson, Eric Dash, and Andrew Ross Sorkin, New York Times)
 
Bernanke Embarrassment: International Audit of American Finances
Officials with the International Monetary Fund (IMF) have informed Fed Chairman Ben Bernanke that the organization wants to do something unheard of: look at America’s books. The IMF is seeking to perform a general examination of the U.S. financial system. Never before has the IMF—which the U.S. helped start and has wielded considerable control over—tried to conduct its Financial Sector Assessment Program (FSAP) in the United States. “It is nothing less than an X-ray of the entire US financial system,” according to an article in Der Spiegel.
 
Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members—but never the United States—have already “endured this painful procedure.” As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team.
The Shrinking Influence of the US Federal Reserve (by Gabor Steingart, Spiegel online)
 
Fed Chief Facing Increasing Dissent
In addition to dealing with the financial crisis threatening to bring down the American financial system and cause a recession, Fed Chairman Ben Bernanke has been facing increasing dissent within the Federal Reserve. The Federal Open Market Committee (FOMC) is the key decision-making body within the Fed, and a group of “inflation hawks” have pressed for increases in interest rates to prevent prices from getting higher. The committee, made up of Fed governors and regional bank presidents, has voted on interest rates eight times since the end of September 2007. All featured at least one dissenting vote—highly unusual in the Fed’s history. At least six of the 12 bank presidents (of whom five vote in any given year) have expressed discomfort with the current, low level of rates. Prior to the Fed’s August 5, 2008, policy meeting, three banks requested a quarter-point increase in the Fed’s discount rate. They did not get it.
When hawks cry (The Economist)
The Shrinking Influence of the US Federal Reserve (by Gabor Steingart, Der Spiegel)
 
Fed Criticized for Helping Wall Street, Not Main Street
Following the Federal Reserve’s decision to help JPMorgan Chase acquire Bear Stearns, Fed Chairman Ben Bernanke was subjected to complaints from Democrats and Republicans claiming that the Bush administration was ready to throw a lifeline to Wall Street, but not to ordinary homeowners suffering from the housing crisis. Bernanke argued that the public’s best interests were foremost in his mind when he moved to save Bear Stearns from collapse. “That’s why we took that action, and I believe that was the benefit of that action—not to help individual Wall Street people.”
 
But Democratic lawmakers wondered if the move justified bolder steps by the federal government to help homeowners at risk of foreclosure. “If we’re going to be a federal backstop to the financial institutions, should not we also be there as a financial backstop to these people that are losing their homes?” asked Rep. Carolyn Maloney (D-New York), who heads the House Financial Services Committee’s sub-panel on financial institutions.
 
Sen. Sam Brownback (R-Kansas) echoed the concerns of some conservatives in Congress that the Fed’s move recklessly exposed taxpayers. “I am concerned when the taxpayer’s money becomes the ‘skin in the game’ to rescue supposedly sophisticated investment and commercial banks from their own poor decision-making,” he said.
 
Fed Rescues Bear Stearns
In March 2008, the Federal Reserve approved a $30 billion credit line to engineer the takeover of Bear Stearns, a longtime financial powerhouse on Wall Street. The Fed also announced an open-ended lending program for the biggest investment firms on Wall Street, and it lowered the rate for borrowing from the Fed’s so-called discount window by a quarter of a percentage point, to 3.25%.
 
The moves amounted to a sweeping and unprecedented attempt by the Federal Reserve to rescue the nation’s financial markets from what officials feared could be a chain reaction of defaults. The Fed approved a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns, which had been teetering near collapse because of its deepening losses in the mortgage market. In a highly unusual maneuver, Fed officials said they would secure the loan by effectively taking over the huge Bear Stearns portfolio and exercising control over all major decisions in order to minimize the central bank’s own risk.
 
Some analysts said the Fed’s decision averted a potential “Chernobyl” meltdown of the global finance system. “If the Fed had not stepped in, we would have had pandemonium,” said James Melcher, president of the New York hedge fund Balestra Capital.
 
As it turned out, the Fed’s bold move did not prevent larger bailouts by the U.S. government of mortgage giants Fannie Mae and Freddie Mac, the Fed’s later rescue of insurance titan AIG, or the $700 billion rescue that the Bush administration proposed in September 2008.
US Federal Reserve bails out Bear Stearns (by Stephen Foley, The Independent)
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Suggested Reforms:

 

 

 

 

 

 

 

 

Bernanke's Reform Agenda

While speaking before the Council on Foreign Relations in March 2009, Federal Reserve Chairman Ben Bernanke called for system-wide overhaul of U.S. financial regulation designed to reduce cyclical booms and busts in financial markets.
 
With the implication that the Federal Reserve would take on a greater oversight role, Bernanke proposed four major changes.
 
One called for ways to minimize the impact of huge financial institutions on the financial markets in the event that so-called too-big-to-fail banks teeter like they did during the 2007-2008 crisis. The Fed chairman said these banks must be subjected to more rigorous supervision to prevent them from taking excessive risk.
 
Bernanke also advocated for ways to bolster money market mutual funds by imposing tighter restrictions on the financial instruments that money markets can invest in or through a limited system of insurance for certain funds; reviewing regulations and accounting rules to ensure that institutions have sufficient funds set aside; and the creation of a financial "supercop" authority.
 
Following the release of Bernanke’s reforms, Congress adopted sweeping legislation intended to strengthen Washington’s role in protecting markets and consumers. The Dodd-Frank legislation included a controversial provision known as the Volcker rule (named after former Fed Chairman Paul Volcker), which would restrict banks from trading with their own money.
 
The Fed was supposed to craft regulations pertaining to the Volcker rule by July 2012. However, Bernanke announced in February that it was unlikely the Fed would meet this deadline. Banks are opposed to this restriction, leading to speculation that the Fed might be considering less stringent measures for the rule.
Bernanke: Volcker Rule Won't Be Set By July (by Victoria McGrane, Wall Street Journal)
Bernanke: Financial Regulatory Overhaul Needed (by Jeannine Aversa, Associated Press)
 
New Fed Regulations to Reign in Credit Card Industry
Prodded by Congress and consumer advocates, the Federal Reserve, in December 2008, approved new regulations to offer consumers better protections from credit card companies. As of August that year, the Fed had received a record 56,000 comments via email and regular mail over its proposed changes to how credit card companies manage consumers’ accounts.
 
The Fed’s rules, among other things, specify when credit card issuers can increase interest rates on existing balances, keep them from calculating finance charges based on the average of balances over two cycles even if part of the debt has been repaid, and prohibit late fees on customers who were not given a reasonable amount of time to pay. The regulationsl also regulates overdraft protection on deposit accounts, requiring banks to let customers opt out of the service before assessing fees. But it does not, in all cases, ban the so-called universal default—the raising of a person’s interest rate if he or she is late on an unrelated debt. It also does not address many arbitrarily high credit card fees.
 
The Fed’s regulations came as members of Congress introduced legislation to take action against predatory credit card companies. The House Financial Services Committee moved a “Credit Cardholders' Bill of Rights” out of committee in July 2008. The measure was designed to prohibit unexpected increases in the rates charged on pre-existing credit card balances, among other things. It passed with a majority vote in the House, but never came up for a vote in the Senate.
 
The bill was reintroduced in the 111th Congress as the Credit CARD Act of 2009. An amended version was passed in both houses and signed into law by President Barack Obama on May 22. It went into effect nine months later, on February 22, 2010.
What the New Credit Card Means for You (by Connie Prater, CreditCards.com)
Credit Card Reform Legislation Time Line (by Tyler Metzger, CreditCards.com)
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Debate:

 

 

 

 

 

 

 

 

The Fed: Give it More Power, or Kill it?

The current financial crisis consuming Washington D.C., and Wall Street has ignited diametrical viewpoints on what should be done with the Federal Reserve. For some, including members of the Bush administration, the time is now to expand the powers of the Fed to help the U.S. government better deal with financial crises in a timely manner. For others in Washington, the time has come to abolish the Fed entirely, owing to the central bank’s consistent failures to bring security to the American economy.
 
Expand the Fed
In the wake of the Bear Stearns bailout, U.S. Treasury Secretary Henry Paulson proposed a number of key changes for lawmakers to consider about the U.S. financial system. Among Paulson’s suggestions was giving the Federal Reserve power to regulate virtually the entire financial industry. That change, argued Treasury officials, would make the Fed the “first responder” to a potential financial crisis. Currently, several agencies and commissions have oversight over various parts of the industry, but none has the broad authority. Paulson also suggested giving the Federal Reserve authority to look at the financial status of any institution that could affect market stability. For Paulson and others, the best thing Washington could do is make the Fed even more powerful than it already is.
 
Abolish the Fed
In contrast to Paulson’s effort to expand the ability of the Federal Reserve, a longtime congressman and presidential candidate wants to do just the opposite: eliminate the Fed. Rep. Ron Paul (R-Texas), who ran for the Republican nomination for President in 2012 and 2008, believes the Fed has been nothing but trouble for America and needs to be shut down. In a speech before Congress, Paul said: “Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

“From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial ‘boom’ followed by a recession or depression when the Fed-created bubble bursts.”

Paul argues that by abolishing the Fed, the U.S. will finally have “a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings,” says Paul, “should be enthusiastic supporters of this legislation.”
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Former Directors:

 

 

 

 

 

 

 

 

Charles S. Hamlin Aug. 10, 1914-Aug. 9, 1916

W.P.G. Harding Aug. 10, 1916-Aug. 9, 1922
Daniel R. Crissinger May 1, 1923-Sept. 15, 1927
Roy A. Young Oct. 4, 1927-Aug. 31, 1930
Eugene Meyer Sept. 16, 1930-May 10, 1933
Eugene R. Black May 19, 1933-Aug. 15, 1934
Marriner S. Eccles Nov. 15, 1934-Jan. 31, 1948
Thomas B. McCabe Apr. 15, 1948-Mar. 31, 1951
William McChesney Martin, Jr. Apr. 2, 1951-Jan. 31, 1970
Arthur F. Burns Feb. 1, 1970-Jan. 31, 1978
G. William Miller Mar. 8, 1978-Aug. 6, 1979
Paul A. Volcker Aug. 6, 1979-Aug. 11, 1987
Alan Greenspan Aug. 11, 1987-Jan. 31, 2006http://federalreserve.gov/bios/boardmembership.htm - fn2
 
 
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Gold 5 years ago
The Creature From Jekyll Island (by G. Edward Griffin) http://www.youtube.com/watch?v=lu_VqX6J93k

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Founded: 1913
Annual Budget: $533 million in new obligations (FY 2012 Estimate)
Employees: 2,331 Board positions; 17,979 employees at Fed Banks, FRIT and OEB (FY 2011)
Official Website: http://federalreserve.gov/
Board of Governors of the Federal Reserve System
Yellen, Janet
Chair

On February 3, 2014, Janet Yellen was sworn in as chair of the Federal Reserve. In taking over from Ben Bernanke, Yellen became the first woman to lead the institution that controls much of the financial system of the United States. She was nominated to the post on October 9, 2013 by President Barack Obama.

 

Yellen was born August 13, 1946, in Brooklyn, New York. She graduated from Fort Hamilton High School in Brooklyn and went on to attend Brown University. She received a B.A. in economics from that school in 1967. Yellen then moved to Yale University, from which she earned a Ph.D. in economics in 1971.

 

She became an assistant professor at Harvard, and taught there from 1971 to 1976. While at Harvard, one of her students was Lawrence Summers, who later became Secretary of the Treasury under President Bill Clinton and director of the National Economic Council under Obama.

 

Yellen then moved to a job at the Fed, becoming an economist in its division of international finance. While there, she met fellow economist George Akerlof, whom she married. Akerlof went on to win the 2001 Nobel Prize in economics, sharing it with A. Michael Spence and Joseph Stiglitz. Stiglitz was one of Yellen’s teachers at Yale.

 

In 1978, Yellen moved to Great Britain, teaching at the London School of Economics. She returned to the United States in 1980, accepting a post at the University of California Berkeley. Berkeley became her academic home from then on, taking leaves to accept government posts, but returning to the university when out of government. One of Yellen’s major works at Berkeley was co-authorship of a study dealing with East Germany’s integration into the German economy upon the reunification of the country. In 1993 Yellen endorsed the North American Free Trade Agreement (NAFTA).

 

Yellen took a leave from Berkeley in 1994, serving on the Federal Reserve System’s board of governors until 1997. At the time, her nomination was criticized by some because of Yellen’s lack of commercial banking experience. Then, Clinton appointed Yellen as chair of his Council of Economic Advisors, succeeding her old teacher Stiglitz. She served there until 1999, when she returned to California.

 

In 2004, Yellen was made president of the Federal Reserve Bank in San Francisco. She was one of the first to herald the coming financial crisis in 2007, urging tightening of rules for making home loans. She later acknowledged, however, that the San Francisco Fed didn’t do all it could have to ameliorate the crash, particularly in respect to Countrywide Financial’s toxic loan portfolio.

 

Yellen left San Francisco in 2010, when Obama nominated her to be vice chair of the Fed. She was sworn into that post in October of that year. There, she urged the Fed to maintain ultra-low interest rates and to continue bond purchases that would help spur economic growth during the slow recovery.

 

When Bernanke announced his departure as Fed chair, Yellen’s former student Summers was seen as a front-runner to fill the post. However, questions about Summers’ temperament persisted, and Summers withdrew from consideration and Obama nominated Yellen to the post.

 

Yellen and Akerlof have a son, Robert Akerlof, who has followed in his parents’ footsteps. He is an economist who teaches at the University of Warwick in Coventry, England. Yellen’s passions include stamp collecting and going on holiday with stacks of economic books for summer reading.

-Steve Straehley

 

To Learn More:

Janet Yellen: An Updated Reading List (by Sarah Wheaton, New York Times)

Janet Yellen Urged Glass-Steagall Repeal And Social Security Cuts, Supported NAFTA (by Zach Carter, Huffington Post)

Fed Chair Candidate Could Bring Brown to D.C. (by Brittany Nieves, Brown Daily Herald)

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Bernanke, Ben
Previous Chairman
Born in Augusta, Georgia, in 1953, and raised in Dillon, South Carolina, Ben S. Bernanke has served as the chairman of the Federal Reserve since February 1, 2006. Bernanke also serves as chairman of the Federal Open Market Committee, the Federal Reserve’s principal monetary policymaking body. His term as chairman of the Federal Reserve expires January 31, 2010.  
 
Bernanke received a BA in economics in 1975 from Harvard University (summa cum laude) and a PhD in economics in 1979 from the Massachusetts Institute of Technology.
 
Bernanke was an assistant professor of economics (1979-83) and an associate professor of economics (1983-85) at the Graduate School of Business at Stanford University. In 1985 he became a professor of economics and public affairs at Princeton. His teaching career also included serving as a visiting professor of economics at the Massachusetts Institute of Technology (1989-90) and at New York University (1993).
 
From 1994 to 1996, Bernanke was the Class of 1926 Professor of Economics and Public Affairs at Princeton University. He was the Howard Harrison and Gabrielle Snyder Beck Professor of Economics and Public Affairs and chair of the Economics Department at the university from 1996 to 2002.
 
Bernanke was appointed to the Board of Governors of the Federal Reserve System in 2002 and served until 2005. From June 2005 to January 2006 he was chairman of the President’s Council of Economic Advisers.
 
Nernanke’s prior assignments with the Federal Reserve included serving as a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).
 
Bernanke has published many articles on a wide variety of economic issues, including monetary policy and macroeconomics, and he is the author of several scholarly books and two textbooks. 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. In July 2001, he was appointed editor of the American Economic Review.
 
Ben S. Bernanke Profile (Washington Post)
The Scary Side of Ben Bernanke (by John Tamny, National Review)
 
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