Robert Reich used his Marketplace commentary this morning to point out that the Federal Reserve Board had the power to prevent many of the abuses that we saw in the mortgage industry over the last few years, but declined to use it. He then called on Congress to appoint new governors to the Fed who would be be prepared to hire the staff necessary to seriously enforce Fed rules. One point that would have been worth noting in this picture is that the Fed writes its own budget. The Fed enjoys a unique status as a quasi public entity. It does not get its budget from Congress. It simply writes up a budget, drawing on fees from banks and interest on the assets it holds (the bonds that it buys with federal reserve notes), and sends it to Congress. Congress is informed of the Fed's budget, it does not ever vote on it. It might be reasonable to subject the Fed budget to the same level of scrutiny as all other federal agencies. Also, the next time that we decide that we have make across the board cuts to items like enforcement of labor laws, food safety standards, and other areas of domestic spending, perhaps the Fed's economic research should be among the line items facing cuts. The impact would be trivial (it's less than 0.01 percent of federal spending), but it might make the other cuts go down better. In any case, very few people are aware of the Fed's peculiar status, which could use some explanation in news stories.
--Dean Baker
