We all know politics makes strange bedfellows. But how about this odd combination: the Occupy Wall Street protesters and a unified group of Republican presidential hopefuls?
As hard as it may be to believe, these two otherwise opposed groups seem simpatico in their abject disdain for the Federal Reserve System, and both seem to want it seriously reformed.
The Occupy Wall Street crowd takes its Fed ire to the belly of the beast on Monday. At 11 a.m., the protesters will congregate around the Federal Reserve Bank of New York, on Liberty Street, in downtown Manhattan. It would be hard to beat the New York Fed -- a stolid, Italian Renaissance behemoth just north of Wall Street itself -- as a symbol of American capitalism.
It also is a fine place to stage a rally, because the New York City police won’t let Occupy Wall Street anywhere near Wall Street these days; their encampment at Zuccotti Park is several blocks from the New York Stock Exchange. (By contrast, on Oct. 15, protesters in London were allowed to rally in front of the London Stock Exchange, although there were plenty of bobbies around.)
The New York Fed was the site of any number of nail-biting weekend meetings during 2008 when Tim Geithner, then the head of the bank and now the secretary of the Treasury, joined with Hank Paulson, his predecessor at Treasury, and Ben S. Bernanke, then as now the chairman of the Federal Reserve Board of Governors. They made the momentous decisions to first rescue Bear Stearns Cos. and then to save the rest of Wall Street, except for Lehman Brothers Holdings Inc., which they let fail.
“The Federal Reserve Bank is another problem that’s added to our melting pot of problems,” the anonymous organizers of the rally wrote on the Occupy Federal Reserve Facebook page. They continued, with less than 100 percent accuracy: “It controls and regulates all our money, and the increasingly high tax rates YOU are paying is what we owe them! And they aren’t even Federal; The US Federal Reserve Bank is privately owned. We will never get out of debt unless we stop them!”
At least the movement is realistic in its goals for the gathering. “We of course realize we can’t stop such a big bank in one rally,” the Web page notes. “But this is to inspire people to speak out. We are part of the WALL ST rally. Be a part of the next big thing. Let your voice be heard!”
It is doubtful that any of the Republican presidential candidates will show up at the New York Fed on Monday morning -- but if their ongoing criticism of the Federal Reserve generally, and Bernanke in particular, is to be believed they might be welcomed with open arms.
For instance, when former Massachusetts governor Mitt Romney was asked at the Bloomberg-Washington Post debate on Oct. 11 whether he would have bailed out Wall Street if he had been in the shoes of Geithner, Paulson or Bernanke, he conceded that he probably would have because the economy was on “the precipice” of a “complete meltdown” and “action had to be taken.”
Quickly, however, Romney pivoted on the bailouts: “Was it perfect? No. Was it well-implemented? No, not particularly. Were there some institutions that should not have been bailed out? Absolutely. Should they have used the funds to bail out General Motors and Chrysler? No, that was the wrong source for that funding.”
Asked whether he agreed with former House Speaker Newt Gingrich -- who said both Geithner and Bernanke should be fired -- Romney said he agreed. “I wouldn’t keep Ben Bernanke in office,” he replied, and then declined to say whom he would select instead.
Bernanke wasn’t going to get any sympathy that night from Representative Ron Paul, who wrote a book called “End The Fed” and has been pushing Congress to demand that the Fed get audited like every other federal agency -- the Fed has resisted the audit, citing markets and the need for confidentiality. Paul asked Herman Cain, who was a governor of the Kansas City Fed during the 1990s, whether he would support a Fed audit. Cain said he would, then went into his own tirade against “this” Fed. “I don’t agree with the actions of this Federal Reserve,” he said. “I don’t agree with the actions that have been undertaken by Ben Bernanke.”
Cain’s model for a Fed chairman is Alan Greenspan, who kept interest rates very low in the mid-2000s, encouraging investors to take more and more risk to find higher yields -- not unlike what Bernanke is doing today.
“The way Alan Greenspan oversaw the Fed and the way he coordinated with all of the Federal Reserve banks, I think that it worked fine back in the early 1990s,” he said. For his part, Paul correctly identified Greenspan’s crucial role in the encouraging what became the financial crisis, and warned that Bernanke was up to the same tricks, only worse. “He’s inflating twice as fast as Greenspan was,” Paul said.
Paul was exactly right in describing the Fed’s problem under Bernanke. By continuing to give Wall Street a gift of free money, which can immediately be invested in U.S. Treasury securities at a hefty spread, the Fed chairman has favored the bottom lines of the big banks at the expense of the new generation of Americans on Main Street who had discovered the importance of saving. While Wall Street gets rich off the Fed’s free money, savers get close to zero in interest and are forced to look for riskier and riskier investments to find higher yields. This is a repeat of the problem Greenspan helped foment last decade. We all know how that turned out.
Although the chances of the Fed being abolished any time soon hover between slim and remote, it is encouraging to see that at least on this one issue anyway, the Zuccotti Park crowd and the conservative Republicans see eye-to-eye. Maybe there is hope after all.
(William D. Cohan, a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. The opinions expressed are his own.)
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