Tuesday, July 14, 2009

Who owns the Fed?

You would think this question would have an easy answer. Is it public or is it private? If it is public, we the people own it. If it is private, well, the shareholders own it. So who owns the Federal Reserve? Let me google that for you.

Here's what the Fed has to say about the matter:
"The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects."
Maybe it is just me but that is confusing. Why is "owned" in quotations? So it is not a profit-making institution, but an independent entity within the government. If that is the case, why did a Federal District Court in California rule that the Federal Reserve is a private corporation? See here:
"Plaintiff, who was injured by vehicle owned and operated by a federal reserve bank, brought action alleging jurisdiction under the Federal Tort Claims Act. The United States District Court for the Central District of California, David W. Williams, J., dismissed holding that federal reserve bank was not a federal agency within meaning of Act and that the court therefore lacked subject-matter jurisdiction. Appeal was taken. The Court of Appeals, Poole, Circuit Judge, held that federal reserve banks are not federal instrumentalities for purposes of the Act, but are independent, privately owned and locally controlled corporations."

And further,

"Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board."


"Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purpose of the FTCA (Federal Tort Claims Act), but are independent, privately owned and locally controlled corporations."
It is worthwhile to read the ruling in its entirety, but "independent, privately owned and locally controlled corporations" doesn't seem to jive with "an independent entity within the government". Maybe the District Judge was confused. I certainly am. Lets see if this handy chart from the Richmond, VA Fed can help us...

So the member banks (commercial banks like Citi, JP Morgan, etc.) are the shareholders in the local Federal Reserve banks, and they appoint two-thirds of the board of directors which manage the local banks. Each banks' board of directors appoints a president, five of whom in turn sit on the Federal Open Market Committee. Stop me when I hit public ownership land, by the way. The Federal Open Market Committee is comprised of five presidents from regional banks, and seven members of the Board of Governors. The Board of Governors is appointed by the President and confirmed by the Senate. The Board of Governors appoints the other third of the board of directors at local Federal Reserve banks, and is advised by a Federal Advisory Council comprised of a representative from each of the twelve regional banks.

Aside from all the confusion, I don't see any public ownership in there at all. There is some public representation - the Board of Governors and their appointment of 1/3 of each banks' board of directors. That is not much. Anyway, who owns the Fed?

Here is an excerpt from an article written by former N.Y. Attorney General Eliot Spitzer on the cozy relationship between the N.Y. Fed and Wall St: (italics mine)

"Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.

So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for—but did not receive—harsh examination from the N.Y. Fed."

Spitzer appears to be suggesting that Geithner works more for Wall St. than he does for the Fed. This quasi-conspiracy theory about Geithner is also advanced by former Assistant Treasury Secretary Paul Craig Roberts (@ 2:50) :

The Federal Reserve system has all the pomp and veneer of a government institution:
  • The name implies a Federal agency
  • The public face, Chairman of the Board of Governors, is appointed by the President
  • It was created in name of the "public interest", to protect the value of the dollar and provide economic stability
  • Has regulatory power over other private corporations
  • Non-profit organization
  • Has a special .gov web address
Despite these embellishments, the District Court of California found it to be a private corporation, and we don't know who the major shareholders currently are. So who owns the Fed? We don't really know. It sure isn't the American people. It appears to me that the Federal Reserve banks are by and large owned by member banks, possibly other foreign central banks, and are "directed" mostly by people who have ties to the banking industry. Can you see why conspiracy theories begin to emerge? Until we can have a proper audit of the Fed, we won't know who owns it.

Support Ron Paul's bill to audit the Fed. Why? 'Cause he pwns the Fed!

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