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.
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