TEXT OF COMMENTARY

Scott Jagow: We’ve heard a lot from the former chairman of the Federal Reserve, Alan Greenspan. He’s been defending his record. Now, the chairman before Greenspan is talking. But Paul Volcker isn’t defending anything. He’s criticizing the current Fed for its recent actions with Bear Stearns and other moves. Volcker says the Fed has exercised powers that are neither natural nor comfortable for a central bank. Commentator Robert Reich puts those words into context.

Robert Reich: You probably learned in school the United States government has three branches. But actually, there’s a fourth, in some ways more powerful than the other three. It’s called the Fed, and it pretty much runs the American economy.

Yes, Congress and the executive occasionally pass laws, like the little stimulus package that’s about to send you a few hundred dollars, and appropriate taxpayer moneys for other purposes. But the Fed can expose taxpayers to hundreds of billions of dollars of potential losses without a single appropriation hearing, as it did recently when it allowed Wall Street’s major investment banks to exchange their tainted mortgage-backed securities for nice clean loans from the Treasury. And the Fed can do amazing things, like decide one big bank, JPMorgan, is going to take over another, Bear Stearns, backed by $29 billion of taxpayer money.

Even its ongoing decisions about interest rates affect us more than anything the other branches do. It’s decided the threat of recession is bigger than inflation, so it’s been lowering interest rates. This has made the dollar drop further. So, you’re paying more for gas and food. Can you imagine if Congress caused this to happen?

Five years ago, the Fed decided to make money so cheap, lenders shoved it out the door to anyone capable of standing up, which created the housing bubble to begin with. And we don’t want partisan politics interfering in this fourth branch. But there has to be some way of making it more accountable.

Most people don’t even know where the Fed is located. It’s on 20th Street and Constitution Avenue in Washington. And most have no idea who runs it. Besides the chair, now Ben Bernanke, sit six other members of the board of governors, each appointed for 14 years. Five regional bank presidents join them on the Open Market Committee.

Who appoints the regional bank presidents? Well, if you don’t know that, you ought to find out. These 12 people have more power over your daily life than your congressman, your senator, maybe even your president.

Jagow: Robert Reich teaches public policy at the University of California, Berkeley. His latest book is called “Supercapitalism.”