In the Catholic school I attended, nuns often kept an entire class after school for the behavior of a few. In the current economic climate, We the People are likely to do the same for any public official who has responsibility for anything "financial." In order to avoid throwing the baby out with the bathwater, here's a list of who is responsible for what, so we don't fire those who may not have misbehaved.
The Federal Reserve Bank
The "Fed" is responsible for two things: Price Stability and Full Employment. Easier said than done.
Price Stability means keeping inflation at bay. As anyone who lived through the 1970s can tell you, inflation is an insidious and difficult problem once it takes hold. It is the amount prices increase over the value of the currency. If prices increase 3% over a year and the value of the currency remains stable, you'll be able to buy 3% less every year. You'll need to earn 3% more to keep even. At that rate, in 25 years, you'll need to double your earnings to stay even.
When the economy slows, the Fed lowers short term interest rates to make it easier for banks to lend money and get business moving again. When the economy starts to rev up, though, the Fed must raise short term interest rates to the rate of lending, or risk inflation. It's a tricky process because the effect of raising or lowering rates isn't felt throughout the economy for about 6 months.
When the Fed raises rates, businesses slow down their borrowing, hiring and expansion. Some will lay off workers to keep costs in check, raising the unemployment level. To keep full employment and price stability, the Fed is dealing with opposing forces. Low rates = full employment, but the threat of inflation. High rates = higher unemployment, but the control of inflation.
Because of the likelihood of political pressure to keep interest rates low (and employment high), and the long term devastating economic effect that would have by causing inflation, the Fed is and must remain an independent body.
The Chairman of the Federal Reserve Bank is Dr. Ben Bernanke. He has held this position since February 1, 2006, and was on its Board of Governors from 2002 - 2005. From 2005 - 2006, he was the Chairman of the President's Council of Economic Advisors.
The Treasury Department
The mission of the Treasury Department is to manage the U.S. Government's finances effectively, promote economic growth and stability, and ensure the safety, soundness, and security of the U.S. and international financial systems. This includes:
Managing Federal finances;
Collecting taxes and paying US bills;
Currency and coinage;
Managing Government accounts and the public debt;
Supervising national banks and thrift institutions;
Advising on domestic and international financial, monetary, economic, trade and tax policy;
Enforcing Federal finance and tax laws;
Investigating and prosecuting tax evaders, counterfeiters, and forgers.
Supervision of national banks and thrift institutions is the responsibility of the FDIC (see below).
Timothy Geithner has been Treasury Secretary since 2009.
The Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by:
•examining and supervising financial institutions for safety and soundness and consumer protection, and
If procedures or policies of insured financial institutions are unsafe or unsound, it is the responsibility of the Chairperson of the FDIC to protect government insured deposits by reporting such action to the Treasury Department and taking action against the institutions that engage in such practices. Note: Virtually all investment banks now operate under commercial banking charters.
The Chairperson of the FDIC Board of Directors is Sheila Bair. She's held this position since June 26, 2006.
The Security and Exchange Commission
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
If procedures or policies by investment bankers result in a lack of protection to investors or are disruptive to markets, it is the responsibility of its five commissioners to:
It is the responsibility of the Commission to:
interpret federal securities laws;
issue new rules and amend existing rules;
oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies;
oversee private regulatory organizations in the securities, accounting, and auditing fields; and
coordinate U.S. securities regulation with federal, state, and foreign authorities.
It is these commissioners who are ultimately responsible to have determined and reported the highly leveraged (borrowings of $30 per $1 of assets) positions that contributed to the financial meltdown in 2008.
The Chairman of the SEC is Mary L. Shapiro, who replaced Christopher Cox in 2009. He held this position from June 2, 2005 through Ms. Shapiro's appointment.
The Glass-Steagall Act of 1933 established the FDIC under the Treasury Department, and separated the activities of commercial bankers, who accepted insured deposits from the community and made business loans, from investment bankers, who offer shares of stock ownership to investors and raise capital for businesses.
This act was repealed under the Clinton Administration.
Fannie Mae and Freddie Mac
These are government sponsored enterprises that were started for the purpose of purchasing home loans from banks. These loans were underwritten under strict parameters, and proceeds from the sale were used by banks to make more loans, and the loans which were "backed by the full faith and credit of the US government," were sold to the public as income investment. These companies became publicly owned ("for profit") companies in 1989.
In September 2003, Treasury Secretary John Snow proposed placing the Freddie Mac and Fannie Mae under Treasury oversight with strict controls over risk and capital reserves.
Representative Barney Frank, ranking Democrat on the Financial Services Committee, responded, "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
The seizure of Fannie Mae and Freddie Mac cost taxpayers $121 billion. The AIG bailout cost taxpayers $85 billion.
Representative Frank has served in the House of Representatives since 1980.
Taxpayers are angry, that is a certainty. Where they are aiming their anger may not, in fact, be where blame actually lies.
To support financial reform, email your Congressional representatives.