Financial System to be Brought Under the Spotlight

Disclosure:  This news article contains interspersed editorial opinion by the managing editor.

Econintersect:  Those who have been arguing that the financial system is broken and needs to be fixed may finally get a spotlight shown into some previously dark corners.  A blue ribbon panel of economists has agreed to advise Sen. Bernie Sanders (I, VT) on the drafting of legislation to reform the Federal Reserve Bank.  The panel includes Nobel Laureate Joseph Stiglitz (pictured), William Black, who held several leading legal counsel positions during the investigation of the Savings and Loan fraud in the 1980s, and Dean Baker, who has been identified by Dutch professor Dirk Bezemer as one of twelve people who published analysis years in advance predicting both the timing and the magnitude of the recent financial crisis.  A complete list follows in the Sanders’ press release on the subject.Reforming the Federal Reserve Bank is the same as reforming the financial system – the Fed is the foundation and the cornerstone of the system. The questions that have been accumulating about how the financial crisis could have been allowed to happen must start with examination of defects in the entire structure, starting with the foundation and the assumptions upon which it rests.  If the process Sen. Sanders has started is competently followed through, the results should be far more penetrating and objective than the rather superficial effort of the FCIC (Financial Crisis Investigation Commission) headed by Philip Angelides which was published in January of 2011.  Serious criticism of that panel and its reports have been written by, among others, Yves Smith of Naked Capitalism and by the aforementioned William K. Black (here and here).

Here is the full press release from Sen. Sanders office:

WASHINGTON, Oct. 20 – Nobel Prize-winning economist Joseph Stiglitz and other nationally-renowned economists agreed today to serve on a panel of experts to help Sen. Bernie Sanders (I-Vt.) draft legislation to reform the Federal Reserve.

Sanders announced formation of his expert advisory panel in the wake of a damning report that faulted apparent conflicts of interest by bank-picked board members at the 12 regional Fed banks.

Top executives from Goldman Sachs, J.P. Morgan Chase, General Electric and other firms sat on the boards of regional Federal Reserve banks while their firms benefited from the central bank’s policies during the financial crisis, the Government Accountability Office investigation found. The dual roles created an appearance of a conflict of interest, according to the GAO.

After the report was issued Wednesday, Sanders said he would work with top economists to develop legislation to restructure the Fed and tighten rules on conflicts of interest, ensure that the Fed fulfills its full-employment mandate, increase transparency, protect consumers and reduce income inequality.

Sanders’ panel of experts includes:

· Joseph Stiglitz, the 2001 winner of the Nobel Prize. The economics professor at Columbia University is a former chief economist for the World Bank.

· Jeffrey Sachs, director of The Earth Institute and an economics professor at Columbia University. He also is special advisor to United Nations Secretary-General Ban Ki-moon.

· Lawrence Mishel, president of the Economic Policy Institute, the premier research organization focused on U.S. living standards and labor markets.

· William Black, associate professor of economics and law at the University of Missouri, Kansas City. He worked with the Federal Home Loan Bank Board, the Federal Savings and Loan Insurance Corporation and the Office of Thrift Supervision.

· Nomi Prins, a senior fellow at Demos, was a managing director at Goldman Sachs, a senior manager at Bear Stearns in London, a senior strategist at Lehman Brothers, and an analyst at the Chase Manhattan Bank (now JPM Chase)

· Jane D’Arista, an Economic Policy Institute research associate, has written on the history of U.S. monetary policy and financial regulation, The former Boston University School of Law professor previously served as a staff economist for Congress.

· Tim Canova, professor of economics and law and co-director of the Center for Global Law & Development at the Chapman University School of Law in Orange, Calif. He was an early critic of financial deregulation and warned of the dangers of the bubble economy.

· Robert Johnson, senior fellow and director of the Project on Global Finance at the Roosevelt Institute. He was chief economist of the Senate Banking Committee and a senior economist for the Senate Budget Committee.

· Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. He was a senior economist at the Economic Policy Institute, a consultant for the World Bank and the Joint Economic Committee of the U.S. Congress.

· Gerald Epstein, chair of the economics department at the University of Massachusetts at Amherst. Epstein also is the co-director of the Political Economy Research Institute.

· Robert Pollin, co-director of the Political Economy Research Institute and economics professor at the University of Massachusetts-Amherst. He has worked with the Joint Economic Committee and the U.S. Competitiveness Policy Council.

· Stephanie Kelton, associate professor at the University of Missouri, Kansas City and a research scholar at the Center for Full Employment and Price Stability.

· James K. Galbraith, professor of government at the Lyndon B. Johnson School of Public Affairs.  He served in several positions on the staff of the U.S. Congress, including Executive Director of the Joint Economic Committee.

The need for major reforms at the Federal Reserve was driven home by the GAO findings announced Wednesday and in an earlier report issued on July 21. Both unprecedented audits of the Federal Reserve were required by a Sanders’ amendment to last year’s Wall Street reform law.

Bill Black has advised that L. Randall Wray, economics professor at University of Missouri Kansas City, is also on the committee selected by Sen. Sanders but his name has not been added to the Senator’s website yet.

Disclosure:  William Black, Dean Baker, Stephanie Kelton and Randy Wray are contributing authors at Global Economic Intersection.

Other GEI News articles have been posted today on the GAO report about governance issues at the Fed and  Sanders’ scathing indictment of the Fed.