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Richard (RJ) Eskow
Published: Friday 25 May 2012
“The scary thing is that Dimon may not be the Fed's most inappropriate board member.”

How to Fix the Fed: Dismiss Dimon, Boot the Bankers, and Can the Corporations

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More and more people are calling for Jamie Dimon, CEO of JPMorgan Chase, to resign from the Board of the New York Federal Reserve.

His latest scandal, combined with Dimon's hypocrisy and relentless self-promotion, make him an obvious target. But Dimon isn't alone. Bankers dominate the Fed at the regional and national levels, and most of the other outside seats are held by executives from large corporations. (Remember Herman Cain?)

Should Dimon resign? They all should.

The Board Member With No Name

The scary thing is that Dimon may not be the Fed's most inappropriate board member. That honor may belong to the individual I call the Board Member With No Name. (I don't to want inflame the situation by identifying her, and what she represents is more important than who she is.)

Shouldn't a résumé that includes being the top bank lobbyist and working for the firm that laundered a third of a billion dollars for Mexican drug cartels disqualify someone from serving at the Fed?

Before she became the banking industry's chief lobbyist, the Board Member With No Name was an executive at scandal-plagued Wachovia Bank, an institution whose egregious mismanagement led to its collapse and a government rescue. Wachovia's many scandals and crimes included: deceptively packaging its toxic subprime mortgage backed securities; rigging municipal bond bids, which led to a$148 million fine; and, worst of all, laundering $378 billion in drug money for the Mexican cartels that have murdered at least 60,000 people.

The legislators who passed the Federal Reserve Act of 1913 couldn't have imagined that someday one of its governors would come from a firm that was buste,d when its laundered money was used to buy a drug-smuggling plane in Sinaloa.

Banks are large organizations, and it's unlikely that the Board Member even knew about the wrongdoing. She looks like a very nice person - and she probably is. But her background hardly qualifies her for a position of public trust. After all, she's only two or three degrees of Kevin Bacon away from cartel bosses like "El Loco," who leads a group of deserters from the Mexican Army's Special Forces known as "Los Zetas."

Coincidentally, El Loco was arrested this week for beheading 49 people and dumping their bodies in the town square.

The drug cartels have been called "vicious," "evil," and "sociopathic." At Wachovia they were also called "preferred clients."


The New York Fed is the most powerful of all the regions - understandably, since it includes Wall Street. Dimon's one of three bankers on its board. One of the others is from a bank which still owed the government nearly $1 billion in TARP money as of last report. The corporate world is represented by the CEOs of a technology venture capital firm, an HMO, and the company which owns Macy's and Bloomingdale's (who's actually said to be a good guy.)

The Richmond Fed's bank representatives include the leaders of First Citizens Bancshares and CommerceFirst bank, as well as the managing partner of a Charleston law firm who specializes in labor and employment law (judging from his resume he defends corporations). There are also executives from an oil company, a big construction company, and an aerospace manufacturer. The Seattle board includes executives from Wells Fargo Bank (Wachovia's new parent) and Boeing.

And so it goes ...

Other banks and corporations represented at the regional or branch level include Bank of America, Boyd Gaming, Shorenstein Properties, Dow Chemical, Nissan, AutoNation, USAA, IBM, Southwest, JC Penney, USG, Nissan, along with energy and lumber companies and some of the legal and accounting firms that serve the country's megabanks.

Of nearly 250 Board members for the Fed's regions and branches, I was able to identify only three union representatives (from the AFL-CIO), one or two pension fund representatives (pension funds have been robbed blind by the big banks), and one member of a housing coalition. The Fed's boards have become more exclusive than a country club - and a lot more powerful.

Federal Case

Why do we even have a Federal Reserve? There are people - mostly libertarians of the Ron Paul school - who think it should be abolished. They're wrong. We need a central bank. The financial crises which peppered our early history proved the need for a secure dollar backed by the "full faith and credit" of the United States government.

Panics like the one that led to William Jennings Bryan's famous "Cross of Gold" speech were led by speculators who became wealthy at the expense of working people and farmers. Back in the 19th Century many banks issued their own dollars, leaving both buyers and sellers unsure of their value from day to day. Anybody who had been holding "Lehman Brothers dollars" would be out of luck today.

So the question isn't whether we need a central bank: We do. The question is, Why is it dominated by the people who have already ruined the economy once - and who have a clear conflict of interest?

The World's Biggest ATM

Give a bunch of bankers access to the world's biggest ATM and look what happens: As Bloomberg News reported last August, "Wall Street's aristocracy got $1.2 trillion in secret loans" from the Federal Reserve.

What the Federal Reserve hasn't done is carry out its mission, which the Fed's own "Purposes and Functions" document describes as:

·       Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

·       Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

·       Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

·       Providing financial services to depository institutions, the U.S. government, and foreign official institutions ...

When it comes to that last bullet point the Fed's knocked it out of the park, especially for the banks. The other goals? Not so much.

Scoring the Fed

Let's rate the Federal Reserve according to the parameters it set out for itself:

·       "Maximum employment": Thanks to the Fed, banks have had access to free or very-low-cost money, which they've used to make money on Treasuries and other safe investments. But they haven't been lending it to the consumers and small businesses who are the engines of job growth.

·       "Stable prices": Gas prices keep swinging up and down radically because of speculation.

·       "Moderate long-term interest rates": Yes - but is that good? Opinions vary.

·       "Safety and soundness of the nation's banking and financial system": JPMorgan Chase's recent debacle shows how little the Fed has accomplished here. but then, how easy can it be to rein in Jamie Dimon when he's chairing the meeting?

·       "Protect the credit rights of consumers": Massive mortgage fraud by major banks. One settlement after another for deceiving consumers. How much time do you have?

·       "Maintaining stability ... containing systemic risk": JPMorgan Chase's latest debacle settles this issue once and for all ...

... By any objective measurement, the Federal Reserve has failed to do meet these key objectives, and the composition of its boards is one of the reasons why.

The Radical Fed

Is it any wonder that the Fed gave out more than a trillion dollars to Wall Street's biggest banks - and did it in secret? (That alone would appear to violate securities law, since it allowed bankers like Jamie Dimon to materially misrepresent the financial condition of their corporations.)

And that's not all the newly radicalized Fed has done. It broke the rules by allowing Goldman Sachs and GE Capital to call themselves "banks" - just in time to collect their taxpayer-funded bailouts. But it hasn't shown any flexibility when it comes to demanding that banks use some of their low-interest Fed loans to lend to the people and companies that will use it to create jobs.

The Fed has even broken its own rules in order to protect bad bankers. As Prof. Steven Davidoff noted in the New York Times: "In Blocking Activists, the Fed Protects Poorly Performing Banks." It's also protecting poorly performers bankers - like the ones that sit on its boards.

In one case the Fed blocked a shareholder action by invoking a rule which said an outside party couldn't have more than 25 percent control of a bank - but the shareholder would only have acquired 22 percent control. As Davidoff documents, Fed is repeatedly bending or violating its own rules to prevent shareholders from exercising their rights to limit executive compensation or take action against underperforming or ethically-challenged executives.

The Fed has changed the playbook for bankers over and over. But whenever someone suggests imaginative programs to stimulate the economy by helping consumers or small businesses the Fed suddenly decides it's a stickler for the rules.

Resistance Is Futile

In our interview for The Breakdown last week, Paul Krugman reiterated his statement that his former Princeton colleague Ben Bernanke has "joined the Borg." The "Borg" is the collective alien entity from Star Trek that takes over people's identities and leaves them with no other mission but expanding its own power.

These Federal Reserve boards represent the Corporate Borg in all its unchecked power - but the power they possess is power that we have given them, through our elected representatives.

It doesn't have to be this way. There are good folks on the Committee, like Janet YellenSarah Bloom Raskin and Daniel Tarullo.

But they're the exceptions, not the rule.

Enter SandersThat's why Sen. Bernie Sanders' Federal Reserve Independence Act is so important. The bill would eliminate these conflicts of interest and force the Fed boards to stop serving bankers' interests and return to the Fed's original mission. People should insist that their Senators support it.

The bill follows on the Federal Reserve Transparency Act, which was cosponsored by Sen. Bernie Sanders and Rep. Ron Paul. That bill demanded a public audit of the Fed, which is how we learned about those massive secret loans. That act showed that the left and the right can work together to change our broken central banking system.

It's time to reunite that left/right coalition. Ron Paul may be wrong about the need for a central bank, but he's right when he says that the Fed must be accountable to the people.

Dissing Dimon

Which gets us back to Jamie Dimon. When the prominent economist Simon Johnson first demanded Dimon's resignation he noted that, while his role is sometimes described as "advisory," Dimon sits on the Management and Budget Committee which supervises the pay of senior Fed executives.

That committee also approves the self-evaluation of senior Fed executives - which essentially means it gives them their performance reviews. It reviews and approves the Fed's overall budget, too, including the budget for auditing bankers like Jamie Dimon. According the Fed itself, its other main responsibility is to "review and endorse the Bank's strategic plan."

Budget, compensation, strategic planning: That pretty much covers everything.

Johnson's call for Dimon's resignation has been joined by Elizabeth Warren and the American Constitution Society for Law and Policy, which calls Dimon's position "a stunning conflict of interest."

They're right, of course. But in saner times people would also be demanding that Dimon resign from his bank, too. His tenure as CEO has been marked by a wave of massive deals to settle criminal and civil charges. That alone would have led to disgrace and resignation in more civilized times.

Even in today's more mercenary atmosphere, Dimon's nothing to write home about: The stock was worth around $40 when he became CEO in 2005 and never rose much above $50 after that. It was $33.78 after this latest fiasco.

Dismissing Dimon

From his perch on the New York Fed board, Dimon has had a front row seat to the dispensing of a trillion dollars in secret cash to Wall Street banks - including his own. His bank reportedly received as much as $48 billion in secret loans at 1.1 interest, when less privileged banks were paying 3.8 percent. The money saved in interest on that loan alone could amount to almost $1.3 billion.

It's like the old saying goes - a billion here, a billion there, and pretty soon you're talking about real money.

Dimon's always been a paper tiger, a product of his own PR campaign and the low standards of his profession. If he won't resign as JPM's CEO, he should certainly resign as its Board Chairman, a title he assumed in 2006. That's another clear conflict.

An ethically-managed Federal Reserve wouldn't wait for Dimon to resolve this internal conflict by giving up one of these roles. It would have demanded it long ago. And it would have dismissed Dimon from its Board for JPMorgan Chase's past scandals, as well as the one that just came to light.

And now for something completely different ...

It seems like something out of a Monty Python routine. The boards that govern the Federal Reserve, the publicly-created central bank that dispenses money to bankers, are all dominated by ... the bankers who receive that money. Picture it if you can:

Fed Board room, 2008:

ECONOMIST: This is serious! The global economy is collapsing because of your reckless gambling!

LONE CITIZEN BOARD MEMBER: That is serious. What can we do? We could break up our banks and fire their executives, or ...

BANKER: Wait! I've got it! Give us more money!

(Nods all around the table)

Six months later:

ECONOMIST: This is serious! We've given you money but you're not lending it out to get the economy moving!

LONE CITIZEN BOARD MEMBER: That is serious. What can we do? Perhaps there could be rules and conditions about lending that ...

BANKER: Or they could give us more money!

OTHER BANKERS: Good one! Let's go with that!

Three years later:

ECONOMIST: This is serious! Joblessness is still at record highs. Poverty has soard. Too-big-to-fail banks are bigger than ever. And you guys are still breaking the law and skirting the rules.

LONE CITIZEN BOARD MEMBER: Hmm. That is serious. The Fed could use its regulatory authority to ...

BANKER: (aside) I hate that guy. (to all) Let me see ... hmmm ... how about giving us more money?

Three and a half years later:

ECONOMIST: This is serious! The country -

BANKERS (in unison): More money!

Clean Up the Boards

The Federal Reserve's governing structure isn't quite that bad - but it's pretty close. As the President of the Kansas City Federal Reserve just noted, bankers have a "special obligation" to maintain the "integrity, dignity and reputation" of the central bank. ""No individual is more important than the institution and the public's trust," she added.

We'll go a step further: The public's trust can no longer be given to a central bank whose governing bodies are dominated by the wealthy and powerful. Bankers and large corporations should be asked to provide information to the Fed, and should be encouraged to offer their advice. But they don't belong on its boards or committees.

Other steps are needed to make the Federal Reserve responsive the people who created it and gave it such power. But the composition of its boards is a key part of its problem. Its an impediment to change and a disgrace to the nation. As Simon Johnson told an interviewer recently, "No other central bank in any serious country in the world allows bankers to be represented in this fashion."

It's time to boot the bankers from the Federal Reserve's boards and those seats to people who will work on behalf of the citizenry which created the Fed in the first place.

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ABOUT Richard (RJ) Eskow

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology.

I don't know much about this,

I don't know much about this, but I have been looking at a dollar bill. Whose name is on it? The Federal Reserve. Doesn't seem like an easy proposition to get rid of the Fed. It's their money we are all playing with. And they aren't even part of our government. I think we already lost the game, the one that started somewhere around 1610 when the Virginia Company of London ended monopoly on land ownership and encouraged private investment. It's been downhill ever since. The US was founded on the principle of property-owning white males being in charge. That hasn't changed. It's just sneakier, although they have so much power, I agree they are addicts at this point and they don't even try to hide it and they don't care what people think.

If we could get Congress to

If we could get Congress to "Tax Em Like 1938", they would have to pay to play at least. In 1938 we had 33 tax brackets from 4% for all income up to $64,000. (adjusted for inflation), all the way up to 79% for all income over $79,Million. With a simple tax code like this (which is what we had from 1930 all the way up to the early '80's, our country could pay its bills, put people to work, keep Medicare, Medicaid, and Social Security going strong, and put a small damper on runaway income inequality. In my opinion anyone who makes an income of over $50,Million couldn't possibly have earned it. In all likelyhood he had to steal it from someone or a lot of someones. Now I don't want to prosecute them for this indiscretion ( because Congress or the Supreme Court probably made it legal); I just think that they should pay their fair share of taxes. "Tax Em Like 1938" is my Motto. That's what I call "Fair and Balanced".

Eskow doesn't quite have the

Eskow doesn't quite have the facts right about the Fed or it's board members and this makes for a drawing of the wrong conclusions. First the legislature creating the Fed was dictated by an agent from the Bank of England with the support of the "big" American commercial banks. It was passed in the Senate without a quorum just before Christmas when most Senators had gone home for the holiday. But this is besides the point.

The Fed was created by the bankers for the bankers as a way to indebt the U.S.of A. for their own profit. Come on Eskow, who are the shareholders of the fed? Nobody knows who owns the 70% not owned by the U.S. Govt. There are seven board members, five chosen by the banking industry and two by government; which even if it dared to post critics (which it dare not!) they would be out voted. The names of the boards participates are not important, they are all interchangeable, removing Dimon only replaces him with another likeness. The problem is the Fed and the bankers fraternity that has indebted the world. Do we need a central bank? No not really. What we need is top bank of the American people, owned and operated for and by the American people. This could be run through the Treasury Dept in an open and transparent way dictated by law and the constitution. As it stands now the Fed is just the clearing agency for the gathering of taxes to pay on the debt the government generates for it's people and corporate suppliers with it's selling of bonds and T bills etc. as collateral for borrowing from the big banks. The whole banking system as it exists under a fractional reserve system is geared to usurp any nation's governance through debt. This is done by the central banks control of the issuance of money and credit. This is the power that must be returned to the people "to which it rightfully belongs." As McKenzie King said (Prime Minister of Canada during WWII) - "usury once in control will wreck any nation." And that my friends is exactly what has happened to the U.S.A. and that my friends is exactly what has happened to almost every nation on the face of the globe. What do you think the IMF,BIS,World Bank are about? They are the international extentions of the central banks which are themselves the creations of bankers. As Sir Joshua Stamp said (director of Great Britains central bank, the Bank of England) ...."if you would be the slaves of bankers and pay the cost of your own slavery then continue to let bankers control the issuance of money and credit."

Following Eskow's recommendations leaves the Fed owned by the anonymous but not so mysterious 70%. Therefore rehabilitation is not possible...end of story.

We do not need a Federal

We do not need a Federal Reserve. The name was chosen to give the impression that it was a part of the Federal Government. It was created to do exactly what it has done - manipulate currency for banker profit. There is absolutely no need for a Federal Reserve. The Constitution doesn't allow for one.

For some reference as to whether or not what is going on today is any different than what went on since this country's inception, read History of the Great American Fortunes Volumes I, II and III by Gustav Meyers. It was written in 1909 and he discusses at length the Astors, Goulds, Harrimans, Morgans, Vanderbilts and the rest of those magnates. They all got their wealth by fleecing the American people. Just like Jamie Dimon and the rest of his ilk today. They get away with it because they control the money and the politicians. Nice gig if you've got no moral compass I guess.

The public created the Federal Reserve? Here's a good site for some quick review on how the Fed was created at Jekyll Island.

I agree the Fed is an evil

I agree the Fed is an evil conspiratorial (both in origin and operation) organisation. However the idea that the Vanderbilts got their start fleecing the American people is rubbish. They got their start providing cheap transportation, first in steamships then in rail. Often he competed against steamship lines that fleeced the public directly (by charging higher prices) and indirectly (by getting government money). Later his railroad provided cheap transport without government help. In fact at least twice corrupt governments tried to rip him off by revoking his charters to short-sell his stock.

Good article until the author

Good article until the author stated we needed a central he then lost all credibility. You can't use banker manufacture crisis to justify a central bank. The only thing to do is get rid of the Fed and all central banks and let the people control their own money.

Criminally indict the Wall

Criminally indict the Wall Street thieves and send Obama and Holder packing for refusing to look back and protecting the racketeering criminal enterprises that are Wall Street.

We do NOT all play by the same rules, thieves are NOT "Savvy Businessmen", and a graduate of Ivy League Columbia and Ivy League Harvard Law School should know these facts since he is supposedly among the best and the brightest in the world.

I am Floyd Bowman. Blog

I am Floyd Bowman. Blog "Opinions Based On Facts." I must point out that Obama is not at all to blame with what the Big Banks are doing or what the Fed. is doing. The Republican House has stopped everything he wanted to do in regulating these Banks. They will not provide any funds to staff the regulation agency to control what these Big Banks are doing. As was said in the article, if the Republicans were to allow some staffing it would only be with there people who would not want to do the job. So many things like this are happening and Obama is being blamed, when it is out of his control. Blog link

It would not be an original

It would not be an original observation that the behavior of bankers and there predatory brethren is a near perfect analogy of the pathological behavior of junkies. Each new infusion of junk (money) requires an ever expanding infusion to effect the same rush. There is no upper limit short of death. There is no means to circumnavigate the rationalization required to continue the status quo. The narcissism required to maintain the fiction of right or even righteousness. Just like a junkie. I would be willing to bet that at the neuro-chemical level, it's not even an analogy, it's exactly the same thing.

What we should have done long

What we should have done long ago, is abolished the Federal Reserve altogether and put the power of the purse back into the hands of the US Treasury, where it should have stayed all along. JFK was the last President to try to restore America's Constitutional guidelines for handling the dispensing of our National Currency, and look at where it got him. These bankers are powerful, and they are getting more powerful everyday. At least, finally, the people are beginning to put two and two together and see the ties between JP Morgan and the Federal Reserve (not that JP Morgan is the only bank involved directly with the Fed). I hope this is the beginning of the end of the Federal Reserve ... finally. I'm not holding my breath, though.

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