A century after violent efforts to suppress resistance to class exploitation, the nation has learned to think about people and the economy with a language that favors the wealthy and elides issues of power.
The years right before the 2008 meltdown found Federal Reserve officials asleep at the switch. Will they wake up this time around?
By Larry Checco
At a recent Brookings Institution think tank event, former Federal Reserve Bank of Philadelphia President Charles Plosser echoed words we’ve heard from former Fed chair Alan Greenspan: “We missed the signs.”
The “signs,” that is, that led to the worst economic collapse in America since the Great Depression.
I was surprised Plosser didn’t utter another line we’ve heard many times since that collapse: “There is plenty of blame (for this crisis) to go around.”
There sure is — from real estate agents and appraisers who inflated the value of homes, mortgage brokers who offered awful and often unethical mortgage products, the sometimes greedy but more often unsuspecting homeowners coaxed into purchasing “liar loans” that required no down payment or job or income verification.
Oh, and let’s not leave out the well-known credit rating agencies that gave all those crappy packages of mortgages triple-AAA ratings to peddle to investors, the banks and government-sponsored mortgage agencies (Fannie Mae and Freddie Mac) that packaged the suspect mortgages and sold them to investors, and, of course, the SEC and other government watchdog agencies asleep in the wheelhouse.
Did I miss anyone?
Oh, yes. We can’t forget the Federal Reserve System and its 12 regional banks with hundreds of economists who somehow “missed” all of this.
Heck, I can’t even reconcile my own checkbook, but even I became suspicious when people I knew who were earning $50,000 a year or less somehow were able to move into $400,000 homes.
Let’s not delude ourselves, folks. Everyone did not miss the signs. In fact, many in the affordable housing industry were crying wolf — when the wolves were actually at the doors in their communities hawking subprime mortgages.[pullquote]Too many people were making too much money for anyone in authority to blow the whistle.[/pullquote]
But too many people were making too much money for anyone in authority to blow the whistle and yell “foul” — and those who tried found themselves publically ridiculed.
To the Fed’s credit, under Chairman Ben Bernanke, we avoided total economic collapse. Problem is that Wall Street interests literally made out like bandits while millions on Main Street may never recover from this calamity.
Many believe the reason Wall Street came out so well is because the Fed has been “captured” by the banking industry.
“Reserve Bank presidents have close ties to the banks they regulate, they are less likely to police bad behavior,” Peter Conti-Brown, a Stanford University Law School academic fellow, contended at the Brookings event.
Conti-Brown and others believe the Fed has become too powerful, opaque, and independent. They would like to see the Fed harnessed with more transparency and public accountability, meaning more Congressional oversight.
Ouch![pullquote]Reserve Bank presidents have close ties to the banks they regulate.[/pullquote]
So we either leave the Fed to the influence of bankers, who time and again have proven themselves egregiously greedy and untrustworthy, or to a Congress largely “captured” by big money interests?
A rock and a hard place doesn’t begin to describe this dilemma.
Yet the Fed is entering another important junction.
Job creation is steaming along nicely — albeit wages are not — adding 295,000 jobs in February and an impressive 3.2 million jobs over the last year. The unemployment rate currently stands at 5.5 percent, near to what the Fed considers full employment. The inflation rate remains low, the dollar strong.
Against this backdrop, a six-year-old zero-rate interest policy is awaiting Fed action.
Can the Fed keep us from another financial crisis? Only time will tell.
In full disclosure, I’m no Federal Reserve or economic scholar. But sometimes commonsense has its place.
And what I commonsensically perceive is that should we experience another recession like the one we just narrowly survived, we can kiss what’s left of the American working middle class good-bye!
The signs are out there again — especially when it comes to rapidly growing income and wealth inequality.
Ya better get it right this time, guys!
Larry Checco is the president of Checco Communications and a columnist for Accountability Central, where he writes on economics, politics, and income inequality. He holds a degree in Economics from Syracuse University and an MA in Journalism and Public Affairs from American University.