Saturday, August 14, 2010

We Are Ruled By Banks (Though Decreasingly So)

This post from Yglesias freaked me out. Apparently 2/3 of the people who pick a regional Fed president are appointed by local banks. People on the left sometimes talk about America being ruled by corporations, but I've never seen as dramatic and direct an example of it as this. Banks get to choose who makes monetary policy! And when you consider the role of institutions like the New York Fed in handling the bailout, you get a situation where public policy is explicitly controlled by special interests rather than the public at large.

Fortunately, the Dodd-Frank financial regulation bill (pdf) makes things better:
Election of Federal Reserve Bank Presidents: Presidents of the Federal Reserve Banks will be elected by class B directors - elected by district member banks to represent the public - and class C directors - appointed by the Board of Governors to represent the public. Class A directors - elected by member banks to represent member banks – will no longer vote for presidents of the Federal Reserve Banks.
I still have no idea how the class B thing is supposed to work -- how are people elected by district member banks supposed to represent the public interest rather than the special interests who elected them? But taking voting power away from these Class A directors looks like a big step forward.

20 comments:

Petey said...

"This post from Yglesias freaked me out. Apparently 2/3 of the people who pick a regional Fed president are appointed by local banks. People on the left sometimes talk about America being ruled by corporations, but I've never seen as dramatic and direct an example of it as this"

The Fed is a damn weird animal. It was created by the banks in an explicit effort to preempt the feds from really setting up shop.

You (and everyone else) really ought to read Liaquat Ahamed's wonderful Lords of Finance. It's got snappy prose, it's a fun read, and while it's mainly a cautionary tale of how to avoid the trap we're currently not avoiding, it also has a very entertaining tangent into the creation of the Fed.

CAP's relentless campaign to deflect blame away from the administration's massive mismanagement of the economy onto the Fed is wrong on the merits, however.

We're still in a place where most of the unused tools in the toolkit are in the hands of the government, not the Fed. I think everyone would like the Fed to raise the inflation target, but that's not where the real ammo is stored. If only we had a Democratic President and Congress, we could actually deal with this thing.

The best metaphor for CAP and their crowd on this topic is someone who is watching a child drown in three feet of water, and keeps screaming for the lifeguard because they don't want to get their shoes wet by wading in to save the kid.

"Fortunately, the Dodd-Frank financial regulation bill (pdf) makes things better ... I still have no idea how the class B thing is supposed to work -- how are people elected by district member banks supposed to represent the public interest rather than the special interests who elected them? But taking voting power away from these Class A directors looks like a big step forward."

Now that's the spirit. You take the most serious financial meltdown in 80 years, combine it with the best Congress in 40 years, and you leverage that opportunity into a bill that only solves 20% of the problem going forward.

You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that preempt Democratic legislation from happening. JP Morgan knew that in 1913, just like this WH knew it during this Congress.

Making lemonade out of lemons is easy, but making lemons out of lemonade is a real achievement. Chris Dodd is going to earn a lot of money over the next decade off that bill. Good times for the Dodd family. Good times.

BruceMcF said...

IOW, the Fed is a long term worry if the recovery gets going, but the problem right now is that Congress refuses to do its job.

Monetary policy is far more effective as a brake than as an accelerator, so the real damage is done when the Fed is pursuing a "fight inflation first" policy aimed at preventing wage increases, also known as "improved median standard of living".

The big reform would be to have the Class B directors actually elected by the actual people that they presumably represent and have the President selected by Class A and Class B directors ... 50:50 in the manner of the classic John Commons commission.

Dodd's version has 50:50 between members selected by the Banks and members selected by the Government normally to placate Wall Street, so its a 50:50 Banks / Wall Street solution.

Petey said...

"the problem right now is that Congress refuses to do its job."

Lots of folks on the Hill really wanted to put stimulus measures into reconciliation instructions back in '09. They thought they had the votes for "break glass in case of emergency" reconciliation instructions.

It was the other end of Pennsylvania avenue that demanded there be no 50 vote path on stimulus measures. And because of the way the Senate rule reforms of the mid-70's are structured, there can be no 50 vote path without the WH's consent.

The WH's culpability here is why CAP and their crowd are so desperate to try to shift the blame away from the political process and onto the Fed at this point. They know that if they can't rewrite history, their crowd will be on the hook for a man-made Washington clusterfuck that may end up dwarfing the Iraqi misadventure in its scope.

I fully agree with you that the political process is the armory where almost all the ammo is located. The Fed has only very limited ammo here. It's just a shame we didn't have a Democratic WH to go along with the 111th Congress. We actually had the political power to do something about this mess before it spiraled too far out of control.

White Houses filled with Mayberry Machiavellis always run into problems because they think policy just doesn't matter. But when you don't care about policy, you end up losing wars and causing depressions. Policy is actually a core part of the job, oddly enough.

Neil Sinhababu said...

Do you have a link on the white house demanding that there be no reconciliation instructions on stimulus, Petey?

Petey said...

"Do you have a link on the white house demanding that there be no reconciliation instructions on stimulus, Petey?"

Unfortunately, the NYT doesn't get to have a reporter in the room during the negotiations between Harry, Nancy, and Rahm, so I don't have an objective source that would prove the case to someone whose job depends on not believing the case to be true.

Similarly, I don't have an objective source to the fact that Harry Reid wanted to pass Democratic healthcare legislation via the 50 vote path in both September '09 and December '09, and was vetoed by the WH both times, even though that is also true.

But still it's a pesky fact that the WH demanded in spring '09 that the reconciliation instructions in the budget be limited to student loans, healthcare and nothing else.

The Democratic leadership in Congress sees no profit in going on the record (yet) about the administration's negotiating positions during the 111th. But there is plenty of coded language in the publicly available record from the time in question describing the state of play in some detail, should anyone be interested in finding facts. And I do have a few sources of info beyond that. I may have many faults, but just making shit up is not one of those faults.

The WH certainly has "plausible deniability" on this one right now. But plausible deniability is something different than what anyone based in the reality-based community should be interested in.

But hey, don't worry your head about that pesky reality stuff. Look over here at the shiny Fed vacancies. They're shiny, and they must pretty much explain all of our problems. And that dandy fin-reg bill will solve Chris Dodd's future problems, er, I mean our future problems. And when the Elizabeth Warren rollout happens, you can bask in the warm glow, and write a blog post about how the good guys won in the end.

Heckuva job with that 111th Congress. Heckuva job.

BruceMcF said...

Neil's job as a philosphy prof in Singapore depends on believing that the WH did not push back against a better HCR?

ummm ... huh?

Petey said...

"Neil's job as a philosphy prof in Singapore depends on believing that the WH did not push back against a better HCR?"

I do understand how a reasonable reader would read it that way, but that was not my intended meaning. I apologize for the clumsy wording.

Neil, to use the phrase in the classical sense, is a "useful idiot". (And to forestall any other misunderstandings, I'm not saying Neil is an idiot, and I don't think Neil is an idiot. I actually have a high opinion of Neil.)

Neil is just finding his talking points from some folks whose jobs do indeed depend on keeping concealed that the administration that worked very hard during the 111th Congress to keep Democratic legislation from breaking out on a pretty wide variety of topics.

Whether or not the government should have the ability to do what CAP now screams is the Fed's baby is one of those topics...

Petey said...

Or to be a shade less subtle, I'm talking to the incoming link...

Neil Sinhababu said...

Until you can find me some evidence, Petey, I'm going to blame the 60-vote Senate on the Chris Dodds of the world -- the ostensibly liberal Senators who won't allow liberal things to get through.

I don't see any evidence that Barack Obama wants a 60-vote Senate. I see plenty of evidence that Chris Dodd doesn't want one, and that he and his corrupt old fogey caucus are tying Harry Reid down. That, and not Obama, is the explanation for all the things you've been rightly complaining about.

Neil Sinhababu said...

that should be -- I see plenty of evidence that Chris Dodd wants a 60-vote Senate.

Petey said...

"I don't see any evidence that Barack Obama wants a 60-vote Senate. I see plenty of evidence that Chris Dodd doesn't want one"

But you are engaging here with something far different than the point I've been repeatedly making.

We don't currently live in a world of a de facto 60 vote Senate.

We currently live in a world of a de facto hybrid 60/50 vote Senate.


If you want to confirm an ambassador to Belgium, then you need 60 votes.

If you want to send money to states and municipalities that can't run deficits in prolonged hard times to keep them from laying off police, closing firehouses, cutting back on teachers, shuttering libraries, and turning off streetlights, then you just need 50 votes + the VP.

I understand the workings of the Senate are somewhat arcane. But if you have any interest whatsoever in the policy machinery of the US federal government, then you simply must educate yourself on the basics of how the Senate works, since that's generally the crucial bottleneck in the policy machinery.

This basics of the Senate aren't widely understood, but that's not because they are that difficult to understand. Instead, it's because a wide range of folks see profit in obscuring the workings of the machinery from a wider audience. Spend an hour a day doing some general research, and you'll be up to speed in under a week. Concentrate on the reforms of 1974 and 1975, since that's where the world of the hybrid 60/50 vote Senate was created.

There existed something very different before the '74-'75 reforms, namely a 50 vote Senate, where regional blocs could occasionally force some legislation into a 67 vote track.

Now we live in a world where pretty much anything that involves appropriations can be put on a 50 vote track if the WH and a simple majority of the Senate and House agree. Everything else goes on a 60 vote track.

The Reagan, Clinton, and Bush the Younger administrations each passed trillions of dollars of legislation through the 50 vote track. It's how you make the policy machinery function in the current era, as long as the WH is on the same page as Congressional majorities.

If we're now up to speed, (and I'm not sure that we are), I'd be happy to engage with you on how the current administration played the hybrid 60/50 vote Senate during the 111th Congress to get precisely the political outcome it wanted, which happened to be significantly less progressive policy change than the Senate itself wanted.

Neil Sinhababu said...

I know all that, Petey, and I was just abbreviating for convenience. My point is that access to the 50 vote track is being blocked by people like Chris Dodd, and not by the White House.

Petey said...

"My point is that access to the 50 vote track is being blocked by people like Chris Dodd, and not by the White House."

How on Earth do you figure that? That's certainly hasn't been in the news I've been following over the past 18 months.

Has Chris Dodd has become your synecdoche here because of fin-reg? I assume not. And, of course, fin-reg is one of those areas that really can't fully be put on the 50 vote track.

(Actually, an administration could do some important fin-reg stuff on the 50 vote track, if that administration were unusually ambitious about policy.)

But the 60/50 distinction cropped up in this thread because of the current unnecessary economic pain, and because of the prospect of increased massive near-term and mid-term unnecessary economic pain, none of which seems to have much to do with Chris Dodd's idiotic views on future Senate rules.

Chris Dodd is incoherently fulminating about a proposed rule change in early 2010 that we almost definitely won't have 50 votes for anyway after November. On the other hand, the White House stopped stimulus measures from being put on a 50 vote track during the 111th Congress that could've changed the real course of economic events. I think you'd concur that those are two massively different things that don't deserve to be conflated, no?

Petey said...

"Chris Dodd is incoherently fulminating about a proposed rule change in early 2010"

Semi-obviously a typo. Should be "early 2011"...

Neil Sinhababu said...

Chris Dodd is the synecdoche for senior Democratic Senators who want the Senate to stay the Senate, and thus are going to twist Harry Reid's arm to maintain a 60-vote process. Nelson and Bayh and Joementum are the obvious bad guys, but the support for a 60 vote chamber runs a lot deeper.

When it's Rahm, Nancy, and Harry in a room, it's Harry who says that they have to go for 60. And not because he personally wants that -- it's because of pressure from the Chris Dodds and John D Rockefellers.

Petey said...

"Chris Dodd is the synecdoche for senior Democratic Senators who want the Senate to stay the Senate, and thus are going to twist Harry Reid's arm to maintain a 60-vote process."

Again, we are talking about two different things.

You are talking about a vote that may or may not take place during the beginning of the 112th Congress which will almost definitely fail if taken.

I'm talking about what has taken place during the 111th Congress.

You are talking about changing the rules.

I'm talking about the realm of the possible (and ordinary) under the current rules.

"When it's Rahm, Nancy, and Harry in a room, it's Harry who says that they have to go for 60. And not because he personally wants that -- it's because of pressure from the Chris Dodds and John D Rockefellers."

But that's just not what happened during the 111th Congress.

Senate leadership wanted to do a few major things with a 50 vote process to produce Democratic legislation, and it was the WH that vetoed that notion and insisted on a 60 vote process so it could instead produce Republican legislation.

I think it safe to assume that Senate leadership wanted to those things with a 50 vote process because it thought it could assemble 50 votes.

Specifically, the WH disagreed with Senate leadership on big items on the following occasions: (There were more, but these were the most crucial.)

- In March/April '09, whether or not to put economic countermeasures into the 50 vote track in the first place.

- In September '09, whether or not to pursue the 50 vote track on healthcare.

- In December '09, again whether or not to pursue the 50 vote track on healthcare.

-----

"...Bayh and Joementum are the obvious bad guys..."

I find it somewhat ironic that you don't see that the current WH is a devotee of the Bayh and Joementum school of policy. The public branding is very slightly different, but the policy thought process (or lack thereof) is pretty much identical.

In policy terms, we've essentially got the pre-'06 Joe Lieberman in the WH.

Neil Sinhababu said...

But that's just not what happened during the 111th Congress.

I think it is, and I'm going to think so until you can give me some hard evidence to the contrary.

Neil Sinhababu said...

We've got these quotes from Dodd and people like him about how they don't want the 50-vote process. And they're the ones who are directly able to wield influence on that issue. Why should I think Obama did it when I've already got culprits in the right place with the motive of protecting their Senate prerogatives and fervent opposition to majority rule?

Petey said...

"We've got these quotes from Dodd and people like him about how they don't want the 50-vote process. And they're the ones who are directly able to wield influence on that issue."

(Very long sigh.)

1) Chris Dodd is against changing the Senate rules to make everything in the Senate a 50 vote process. His position is 100% dead wrong on the merits, and the way he expressed himself wasn't even particularly coherent.

2) Chris Dodd, to the best of my knowledge, has never said, done, or even thought anything against the existing 50 vote process that's been available in the Senate during his entire career. If there had been more 50 vote process rollcalls during the 111th, I have every reason to believe Chris Dodd would have voted with us.

These two things really don't have anything to do with one another.

-----

"I think it is, and I'm going to think so until you can give me some hard evidence to the contrary."

There is no simple "hard evidence", Neil. As I freely conceded above, the WH still has "plausible deniability" on all of this.

No one in the Democratic leadership in either chamber sees any profit in speaking clearly and on the record about any of this.

Instead, you get lots and lots and lots of coded shit like this, generally even more coded than that one. And you get lots of quotes that are far less coded, but are unattributed.

Maybe Harry Reid will decide he doesn't want to be obscenely rich, and after he loses his seat, instead of following the normal path of becoming a lobbyist, he'll write a tell-all book. And then you'll have your "hard evidence" in a year. But I wouldn't count on it. These are stories that likely won't be publicly told until after 2013.

In the meantime, if you want enough evidence to convict using the burden of proof of a civil case, you can find it from your keyboard! It's time consuming, but it's there. You'll just need to do some close reading of the original sources. Read the Washington coverage of the NYT and WaPo for all of 2009. Read some 2009 writing of the (small) intersection of the lefty blogosphere that has both a triple digit IQ about the political process and isn't just recycling WH strategy memos first or second hand. Just because no one is talking on the record doesn't mean there isn't a pretty solid circumstantial case to be presented to a jury.

Or, you could just take it that you have enough prior knowledge to assume that I don't just make shit up, that I'm politically astute, and that if I'm talking with a degree about certainty about something, it's likely that I've been following it closely enough to probably know what I'm talking about. That's certainly not "hard evidence", but it ought to be worth something...

Petey said...

"We've got these quotes from Dodd and people like him about how they don't want the 50-vote process. And they're the ones who are directly able to wield influence on that issue."

Let me unpack the bolded sentence of this one even better.

Important guys like Dodd and Baucus are bulls. They run bottleneck committees, and they take their pound of flesh out of big bills that pass through their committees. But bulls don't wield outsize influence on Leadership matters.

When a fin-reg bill passes through a bull's committee he's got a lot of influence. That's his domain.

But everything around the 50 vote "fast track" process established by the '74-'75 reforms is in the domain of Leadership. And bulls don't necessarily (or usually) have outsize influence in Leadership.

Leadership, with the consent of the WH, determines what gets initially put on the 50 vote "fast track" through the budget resolution.

Leadership, with the consent of the WH, then determines what gets brought to the floor on the 50 vote "fast track".

So let's walk the process through with an example. For the sake of the example, let's stipulate my reading of the events in 2009 of correct:

The decision in spring '09 to initially put healthcare on the 50 vote "fast track" is made in a room with Harry, Nancy, and Rahm. Bulls have no special influence there. The decision in fall '09 to not bring healthcare to the floor under the 50 vote "fast track" is made in a room with Harry and Rahm. Bulls have no special influence there.

Now fine, that's me trying to show my work about Dodd not having any outsize influence on the issue. But as long as we've waded this deep into the process of the domains of bulls and Leadership here's the fun part.

A healthcare bill that gets brought to the floor under the 60 vote "regular order" is made in a room with Max and Rahm. But a healthcare bill that gets brought to the floor under the 50 vote "fast track" is made in a room with Harry and Rahm.

In my reading of the events of 2009, Leadership desperately wanted to get its paws on the healthcare bill, had counted they had the votes to do what they wanted, but was outright denied consent by the WH. The WH simply preferred doing the deal with the committee bull. At the end of the day, the '74-'75 reforms gave the WH a choice of cutting a deal with Harry or with Max, and they picked.