Federal Reserve Watch

It's been a busy, and a not particularly fortunate, few days for the Federal Reserve.

Basically, as a result of the increasing doubts in it as an institution, it has been forced to reveal more and more about what it does, and how it performs, and it's not pretty.

Each disclosure, raises more doubts, which makes various people in government doubt which creates a demand for more disclosures, which raises more doubts....rinse, lather, repeat.

First, we have a report from the Fed that they lost $5.3 billion in alleged investments in Bear Stearns and AIG that were a part of the rescue packages for the investment bank and insurance firm, which were supposed to be simple guarantees that weren't supposed to be needed.

Then we have the Fed revealing details on it's $1+ trillion lending program to financial institutions to the Congress, and the response from Senator Bernie Sanders (I-VT) is, "completely insufficient," and demanding to know what the central bank is doing with the taxpayer's money.

That sort of push-back against the Fed would have been unthinkable just 2 years ago, and it's one reason why they have walked away from asking Congress to grant them the power to sell their own debt.

They know that any request for additional power right now would be viewed as a turd in a punchbowl.

Finally, we have reports that the Federal Reserve ordered Ken Lewis and Bank of America to conceal material facts from their shareholders, which is securities fraud, so the House Oversight and Government Reform Committee issuing a subpoena for the relevant documents.

So now between the testimony of BOA CEO Ken Lewis, recently released emails, and an internal memo confirming this.

It is therefore not surprising that they are hiring a high power Washington lobbyist to plead their case with Congress.

I think that there are some areas, such as managing monetary policy in order to control inflation, where there is some justification for insulating the decision making process from democracy, but the role of the Fed has expanded under Volker and (particularly) Greenspan, and has moved into areas where oversight by the Legislative, Executive, and Judicial branches really is necessary.