We are in the midst of this terrible recession due largely to the greed, irresponsibility and illegal behavior on Wall Street. As a result of Wall Street recklessness, unemployment remains far too high, millions of older Americans have lost their life savings, and many young people just graduating from college are having a hard time finding work. We must never again allow this type of greed and irresponsibility to destroy our economy and the lives of millions of Americans.
The American people do not want to bail out Wall Street again. They want our financial institutions investing in the real productive economy -- creating jobs, goods and services. They want an end to Wall Street functioning as a huge gambling casino separated from the real world and the needs of ordinary people.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, I wrote an amendment requiring the Government Accountability Office (GAO) to audit the Federal Reserve during the financial crisis period and to investigate potential conflicts of interest within the Federal Reserve System. As a result of these GAO reports (which came out in July and October of last year), we learned that the Federal Reserve provided a jaw-dropping $16 trillion in total financial assistance to every major financial institution in this country as well as a number of corporations, wealthy individuals and central banks throughout the world.
The trillions of dollars in near-zero interest loans that the Fed provided to Wall Street has been well documented. What has not been as well-known, up until recently, are the enormous conflicts of interest that currently exist at the Fed.
For example, last October, the GAO revealed that many of the people who serve as directors of the Federal Reserve Banks come from the exact same financial institutions that the Fed is in charge of regulating, including Jamie Dimon, the CEO of JP Morgan Chase, the largest financial institution in the country.
In other words, the people "regulating" the banks are the exact same people who are being "regulated." If this is not a clear example of the fox guarding the hen house, I don’t know what is.
The GAO has detailed instance after instance of top executives of financial institutions and corporations who could have used their influence as Federal Reserve directors to financially benefit their firms. Specifically, the GAO found that at least 18 current and former Fed board members were affiliated with banks and companies that received near zero interest emergency loans from the Federal Reserve during the financial crisis.
I think the American people would be shocked to learn that the CEOs of some of the largest banks in America are allowed to serve on the boards of the main agency in this country in charge of regulating these financial institutions. Allowing banking industry executives to serve on the Fed’s boards and hand-pick its members and staff is a clear conflict of interest that must be eliminated.
The recent multi-billion dollar trading loss at J.P. Morgan Chase underscores the need to structurally reform the Federal Reserve System. The Fed has got to become a more democratic institution responsive to the needs of the American middle class, not just Wall Street CEOs.
It is a blatant conflict of interest for Jamie Dimon, the CEO and Chairman of JP Morgan Chase, to serve on the New York Fed’s board of directors. In my view, it is a conflict of interest when any bank CEO sits on a Federal Reserve Bank board.
The American people deserve a Federal Reserve that is truly independent from the financial institutions it supervises and oversees. That is why Senator Boxer and I have introduced the Federal Reserve Independence Act. This legislation would:
• Prohibit banking executives or employees of companies regulated by the Fed from serving on the Federal Reserve’s board of directors;Under this legislation, no one who works for or invests in a firm eligible to receive direct financial assistance from the Fed would be allowed to sit on the Fed's board of directors or be employed by the Fed.
• Prohibit the banking industry from choosing any members of the Federal Reserve’s board of directors; and
• Prohibit Fed employees or board members from owning stock or investing in companies that the Fed regulates, supervises or oversees with absolutely no exceptions.
It is time for change at the Fed -- real change. One thing is clear: Americans deserve a Federal Reserve that works for them, not just the top one percent.
Senator Bernie Sanders