In a New York Times op-ed published on Wednesday, Sen. Bernie Sanders warned taxpayers that they could be responsible for paying another, larger bailout if the Federal Reserve is not immediately restructured to eliminate conflicts of interest with Wall Street. Accusing the foxes of guarding the henhouse, Sen. Sanders demanded transparency and reforms to prevent commercial banks from gambling with Americans’ bank deposits.
“Wall Street is still out of control,” Sanders warned. “Seven years ago, the Federal Reserve and the Treasury Department bailed out the largest financial institutions in this country because they were considered too big to fail. But almost every one is bigger today than it was before the bailout. If any were to fail again, taxpayers could be on the hook for another bailout, perhaps a larger one this time.”
Although Sanders accused the bankers of hijacking the Fed, the Federal Reserve was actually created in secrecy three years before the enactment of the Federal Reserve Act. On the evening of November 22, 1910, several prominent banking executives representing J.P. Morgan, John D. Rockefeller, and European central banking interests boarded a train under assumed identities before meeting on Jekyll Island, Georgia. Using codenames on their trip, Sen. Nelson Aldrich, Assistant Treasury Secretary A.P. Andrews, President Frank Vanderlip of the National City Bank of New York, President Charles Norton of the First National Bank of New York, Kuhn, Loeb & Co. representative Paul Warburg, and J.P. Morgan representatives Henry Davison and Benjamin Strong secretly designed the private central bank that repeatedly thwarts Congress’ attempts to investigate it.
“What went wrong at the Fed? The chief executives of some of the largest banks in America are allowed to serve on its boards. During the Wall Street crisis of 2007, Jamie Dimon, the chief executive and chairman of JPMorgan Chase, served on the New York Fed’s board of directors while his bank received more than $390 billion in financial assistance from the Fed. Next year, four of the 12 presidents at the regional Federal Reserve Banks will be former executives from one firm: Goldman Sachs,” Sanders wrote.
“These are clear conflicts of interest, the kind that would not be allowed at other agencies. We would not tolerate the head of Exxon Mobil running the Environmental Protection Agency. We don’t allow the Federal Communications Commission to be dominated by Verizon executives. And we should not allow big bank executives to serve on the boards of the main agency in charge of regulating financial institutions.”
If elected president, Sanders vows to eliminate conflicts of interest in the Fed by restructuring its governance system. Instead of bank executives dominating the Fed’s board, Sanders would like to see representatives from all walks of life on the Fed’s board, including people representing labor, consumers, homeowners, urban residents, farmers, and small businesses.
Besides demanding transparency from the shadowy institution, Sanders called on the Fed to commit to several reforms in order to prevent another bailout. The presidential candidate wants to prohibit commercial banks from gambling with people’s money while encouraging financial institutions to invest back into the economy by providing affordable loans to consumers and small businesses.
Sanders also called for the Fed to stop providing incentives for banks to withhold their money from the economy while increasing lending to trustworthy small businesses. As a condition of receiving financial aid from the Fed, Sanders wants large banks to reduce credit card interest rates and fees while helping struggling homeowners on the brink of foreclosure.
“Financial reforms must not stop with the central bank,” Sanders explained. “We must reinstate Glass-Steagall and break up the too-big-to-fail financial institutions that threaten our economy. But we need to start with fundamental change. The sad reality is that the Federal Reserve doesn’t regulate Wall Street; Wall Street regulates the Fed. It’s time to make banking work for the productive economy and for all Americans, not just a handful of wealthy speculators. And it begins by making the Federal Reserve a more democratic institution, one that is responsive to the needs of ordinary Americans rather than the billionaires on Wall Street.”