A field trip to the (outside of the) New York Fed

I had the distinct pleasure of spending my Spring Break in the world's greatest city, New York. (Skeptics, lay down your spears, they've got it by a long shot). Among the requisite hours of wandering the lonely grey streets by myself, and out of a clear duty to the undertakings of this blog, I paid a visit to one of our government's most notoriously lavish (or is it lavishly notorious?) buildings, the Federal Reserve Bank of New York.

Of course, though, I didn't go inside. More specifically, I wasn't allowed inside. If I'd wanted to, I would have had to make plans six weeks in advance, via direct communication with Ben Bernanke, his permission written in stone with blood (OK, the blood part is exaggerated). Nonetheless, even if I'd had a tablet with Ben's hancock on it, the guard's general air of nonplussedness makes me wonder if I'd have been allowed in.

So instead of taking a look inside, I made a circle of the block on which the building stands. The above picture gives you an idea, more or less, of the appearance of the building. Why, it looks like the Egyptian pyramids made out of granite! you say. Yes indeed, it does. I'd bet these blocks were rolled vast leagues upon giant logs, with the aggregated will of many thousands of peasant hedge fund managers. Every fifty feet or so, between those giant stones, each first floor window has been covered over with a slab of concrete, which is in turn caged by wrought iron bars. Apparently they want to keep what's outside, out, and what's inside, in. At least that's what I took from the experience.

I had read in David Wessel's book In Fed We Trust that several hundred feet below the Fed building, upon the bedrock of Manhattan Island, is The Vault, where many tens of gazillions of dollars in gold bullion are stored. Not one to miss my chance to cash in, I found a plot of dirt (hard to come by here) and started digging.

A word to the wise: several hundred feet is a long way down. After three to four slog-filled minutes, replete with bloodied knuckles and awkward stares from passers-by, I lay down my tools (an empty Dunkin Donuts cup and a toothbrush I bought at Duane Reade) and was beaten.

As I vacated the premises (the guard's words, not mine), I noticed I was not alone in my desire to stand up to The Man (and also not alone in ultimately losing out). On the opposite side of the building from my mining experiment was another apparent member of the Rebel forces, under the glare of a non-so-official-looking deputy, cleaning from a low corner of the Fed what looked like graffiti.

Judging by her violet-colored fleece of the North Face variety, and her comfortable-looking Keen shoes, I estimated she was from the Pacific Northwest, having made a sort of anti-pilgrimage to the East to protest evil financial practices that are probably irrelevant in the Northwest, anyway (I have heard most people up there live deep in the woods, eating only granola and what they can forage from streams and with hatchets [my sources for this information are Bill Bryson and Gary Paulson books]). I offered some silent solidarity to her struggles and went on.

What did I learn from this trip? To be honest, not much. Mostly that you should wear gloves when you dig in Manhattan. Then again, the Federal Reserve does seem kind of important in the whole scheme of things, holding a lot of our money and stuff, and trying to keep our economy afloat, you know? At first I thought those big thick walls were a little bit showy and standoffish, but considering what goes on inside, I could maybe kind of see why they pay a tough guy to stand at the door telling people like me to go away. Whatever. I don't know. What do you think?

Overseeing Banks: Who Does It?

With the economy slowly limping back towards the positive, government action is starting to take place. Pushed along by President Obama, Congress finally has banking regulation bills on the floor. Though the House has already passed a primary bill, debate in the Senate continues over who should be in charge of overseeing the banking industry. Their are currently two choices, the Fed (Federal Reserve Bank), and the Treasury Department. Neither party has solidified which side it supports with both Democrats and Republicans supporting each "candidate."

The House bill provides for continued Fed power, however it is likely the the Senate decision will strip the Fed of some of its responsibilities, bequeathing them to the Treasury Department. The most important is financial regulation. Mr. Bernanke (head of the Reserve) said earlier this month that he would support a Treasury-lead council, however only in regards to risk management.

Whether or not the Fed should lose control of some regulation is still up for debate. What is clear, is that Congress will soon pass a bill creating a committee to watch over financial institutions in an effort to prevent another economic collapse. Hopefully this committee will mark a meeting of the Fed and the Treasury, and that a coalition of these agencies will promote a more watchful guardian over the big national banks.

Men in Fancy Suits: Let's Play Icebreakers

The first step we'll take to understanding potential banking regulation this semester will be to get to know the people involved--the major players who we'll see on TV or hear on the radio, whose names are mentioned along with various plans, organizations, or other important individuals. We'll begin with four people whose names have been in the air since the Obama administration came to office in January of 2009. Even though some hail from academia and others from top banks, in reality, they are all just men in fancy suits.

We'll go alphabetically...

1. Ben Bernanke: Chairman of the Federal Reserve

The unassuming man from South Carolina spent much of his career teaching at Princeton University after receiving degrees from Harvard and M.I.T., where he had particular interest in the Great Depression. It was only in 2005 that he became involved in politics, when George W. Bush tapped him to become part of his Council of Economic Advisors. He spent a year there before being nominated and confirmed as the successor to Alan Greenspan as Chairman of the Federal Reserve. If he only knew what he was getting into...

In 2007, when credit was beginning to tighten, Bernanke oversaw several large interest rate cuts. But only in 2008 did the credit crisis boil over, leading to the now infamous acquisition of Bear Stearns, a private investment bank, by JPMorgan Chase; the collapse of Lehmann Brothers; and the beginning of the bailouts. Bernanke is said to have helped coordinate the takeover of Bear Stearns, and has already taken much heat for advocating the bailout of the American International Group. During his tenure as Chairman of the Fed, he has overseen massive increases in the entity's power, utilizing billions of dollars of its funds to shore up unstable financial institutions. (See a very good bio of Bernanke HERE on nytimes.com)

2. Timothy Geithner: Secretary of the Treasury

When Tim Geithner's name was leaked as the nominee for the position of Secretary of the Treasury, stocks rose 300 points. That, in itself, should be an indication of his history with the financial industry. He is not a bank insider, per se, but his long career has included several decades of close work with the financial institutions that have borne much of the blame for the current recession. He first joined the Treasury department in 1988 as a low-level employee, and gradually worked his way upwards. During the Clinton administration, he was named under secretary of international affairs. On his way to becoming president of New York Federal Reserve in 2003, he spent some time as the director of the International Monetary Fund. Before being nominated to his current position, he worked closely with Hank Paulson, his predecessor, and Ben Bernanke, in order to stabilize a rapidly deteriorating economy. Much experience indeed...

As Secretary of the Treasury, Geithner has resisted some of the administration's vocal left-wing members. He has remained true to (or erred on, depending on how you see it) the side of handing banks large amounts of capital to open credit markets and cleanse balance sheets of toxic financial instruments. For that stance, he has faced considerable criticism from both sides of the aisle. But when A.I.G. announced it would be awarding generous bonuses in March 2009, Geithner really took heat. How did he not know about them? lawmakers asked, and why can't he stop them? Since, Geithner has been part of the Obama plan to limit the intricate financial activities of banks. Nonetheless, in recent weeks, several lawmakers have called for his resignation. (Read more on Geithner HERE).

3. Larry Summers: Director, National Economic Council

The former president of Harvard University, chief economist at the World Bank, and Treasury Secretary under President Clinton is known for his dogmatic emphasis on debate and discussion. He is President Obama's closest economic advisor, and controls what appears in each day's economic briefings.

In spite of his personal connection to high finance (he is said to have earned over $5 million while consulting--one day per week for two years--for one of the world's largest hedge funds, D. E. Shaw & Co.) he has recently shown himself allied more with President Obama's progressive political advisors than with his moderate cabinet members. Whether that means he will throw himself behind proposed regulations to reign some of Wall Street's most lucrative financial institutions, we don't currently know. However, his reputation does suggest he is "more sympathetic to the concerns of investment bankers (see the nytimes.com article on Volcker).

(More on Summers HERE).

4. Paul Volcker: Chair, President's Economic Recovery Advisory Board

Paul Volcker's reputation precedes him by miles. His career spans the the entire second half of the twentieth century, and includes tenures with the New York Fed, Chase Manhattan bank, the Treasury Department, Princeton University, the Federal Reserve, and his current position with the Obama administration. As chairman of the Federal Reserve in the 70s and 80s, he was at first criticized for pushing aggressive interest rate increases, which attempted to fend off the inflation caused by negative oil supply shocks in 1973 and 1978. In retrospect, however, he has been lauded for those tactics, and for laying the groundwork for subsequent economic growth.

Volcker is viewed by many as an opposing voice to those of Tim Geithner and Larry Summers. "The Volcker rule," or a ban on big bank's proprietary trading, stands as part of a greater progressive plan to stabilize and regulate the financial industry. Moreover, it has been said that Volcker and Summers do not get along. But while while Summer's has the advantage of leading a specific chain of command (and having the sole economic office in the West Wing), Volcker's role affords him greater freedom to voice his opinions. Whether Volcker's more aggressive plan prevails over or submits to the more conservative options is yet to be seen. (Read more on Volcker HERE).

(Credit for the material in this post is due to the New York Times online, Bloomberg News, and the New York Fed website).