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Either Barack Obama or John McCain will have a big opportunity to shape the Federal Reserve Board. Not only will the next president get to name the next chairman -- because current chief Ben Bernanke's term is set to expire in 2010 -- he'll also likely fill at least four seats on the seven-member board of governors.
There's one vacancy now and another on tap when Frederic Mishkin steps down at the end of August. Randall Kroszner's term has expired, likely opening his spot soon. Yet another vacancy was filled June 30 by Elizabeth Duke, a former president of the American Bankers Association, but that seat will be open again in 2012.
Earlier this year, President Bush recommended reappointing Kroszner and naming Duke and a third person, Larry Klane. But Senate Banking Committee Chairman Christopher Dodd (D-CT) isn't rushing to confirm them in the hopes that Obama will take over the Oval Office. He did act on Duke's nomination because, among other reasons, some emergency actions by the Fed require votes by five governors. Mishkin's departure would have left the board at four.
Many board openings are unusual. Going back to the 1930s, there haven't been more than two vacant governor seats at any one time. There's no lifetime tenure to the board, but a full term lasts for 14 years. Most governors, though, leave short of that. Mishkin, for example, has served just two years.
The political philosophy of new board members will matter a lot. The Fed does more than just peg short-term interest rates. It examines banks and sets rules for credit card use, among other duties. Moreover, Treasury Department officials want the Fed to have broad new powers over financial markets in the wake of problems that big commercial banks and investment banks are having with mortgage-backed securities. John Silvia, chief economist with Wachovia Corp., says, "If the Fed has more regulatory power, [Dodd] wants more Democrats on board."
Until the vacancies are filled, debate at the rate-setting Federal Open Market Committee (FOMC) will also be more heated. Besides the seven governors, the FOMC deliberations include five presidents of the 12 regional Fed banks. With fewer governors at FOMC meetings, the views of the bank presidents will be amplified.
Two of those presidents have already voiced criticism of the Fed's past few rate cuts and also of its opening a special lending window to big Wall Street investment banks. Such dissension troubles economists, who worry that the squabbling tends to diminish the Fed. Stuart Hoffman, chief economist with PNC Financial, who applauds the recent appointment of Duke, adds: "They need to make the additional appointments."
Workload is also an issue. Lyle Gramley, a former Fed governor, says that while the public's attention on the Fed revolves around setting interest rates, governors also have many administrative duties. For example, governors make annual reviews of the budgets of each of the 12 regional banks, while one governor is assigned to attend all international meetings. So, Gramley says, vacancies take a toll on existing board members because "the workload increases enormously."
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POSTED BY: wallace skalyo (July 07, 2008 10:56 AM)
The Federal Reserve Board is the greatest fraud foisted on the citizens of the U.S.A.. and should be dissolved !!!!!
POSTED BY: Joe Honick (July 08, 2008 12:41 PM)
While the Fed hardly has been all we might have liked in the current crisis, if it did not exist at all, the gluttons who have done so much damage might have finished the job. What is really lacking in our current dilemmas is any form of mature leadership at 1600 Pennsylvania Avenue and right up to and including Capitol Hill...and the apathy of the American electorate.
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