Perhaps the most surprising aspect of Senate Banking Committee Chairman Christopher Dodd's (D-CT) proposed financial reform bill (.pdf) was the role of the Federal Reserve. In his original draft from November, Dodd mostly stayed away from increasing the power of the Fed, seeking to establish a new systemic risk regulator, rather than provide that duty to the Fed like the House version. This week's new proposal, however, mostly fits in the House's mold. But he ultimately provides the Fed with even more power, by putting the Consumer Financial Protection Bureau under its umbrella, though it remains mostly independent. Then, he sort of attempts to rein in the Fed in a little with some new restrictions that come out of no where -- like not allowing any bank employees on the Fed's Board of Directors and requiring the president of the New York Fed to be nominated by the President and confirmed by the Senate.
When I think of someone opinionated about the Federal Reserve, Congressman Ron Paul (R-TX) comes to mind. He also happens to be a rock star of the GOP, fresh off his 2012 Presidential straw poll win at the annual Conservative Political Action Conference last month. So I thought it might be interesting to get his thoughts on some of the more controversial aspects of Dodd's bill that involve the Fed. Given that Paul wants the Fed abolished, you can probably guess the direction his opinions take: anything that strengthens the Fed he's against, while anything that limits its independence he's for. The transcript of our conversation is below.
Me: Are you disappointed that Dodd's new proposal provides the Fed with more systemic risk authority than his original bill?
Paul: Well, I don't know whether I'm disappointed or excited. It's just sort of what I expected. What else do they do? When somebody gets very powerful, and they mess things up, Congress tries to clean it up, and they exacerbate it by giving the people who caused all the trouble more power. I just think it's typical of the way government works. I don't expect much good to come form this, and the Fed's gonna be more powerful than any other, and there's really not gonna be any real transparency of the Fed. They're protected from that happening.
What do you make of Dodd putting the Consumer Financial Protection Bureau in the Fed?
Well, I think that's the main thing where they're getting a lot more power. It's interesting that, of course, it'll be funded by the Fed. So they're going to do all this mischief and have all these bureaucrats. It won't even be on the budget. And there will really be no oversight by the Congress. It's government totally out of control. It's just absolutely bizarre that you could create a Consumer Protection Bureau within the Fed, and they do all their own funding. And Congress probably won't do anything about it.
Dodd does want a GAO audit of the Fed. What's your sense of how that compares to your amendment that passed for the House version?
I haven't looked in total detail, but it looked to me like the same language of the Watt bill, when Mel Watt and I had the debate in committee when his went down and mine prevailed. I think the Watt language got put in there, which was just sort of words, but no true audit. It's been more or less been conceded by the Fed and others that these lending agencies that were created during the crisis, that we will eventually will get that material, and I think that's what they say they can do. But it doesn't do anything about overseas lending, central banks and other governments, and what happens at the discount window. None of that will be audited.
Dodd wants financial stability to now be an explicit function of the Fed. What do you think the outcome of that would be?
Financial stability? Well you need a stable dollar to have that. You can't allow somebody to double the money supply in one year and have the financial community wondering: when is he gonna take that off the balance sheet? You don't get stability that way. It's impossible. They created the bubble -- they've created all of the bubbles since 1913. And they create the depressions and recessions. The last thing they're capable of doing is giving us financial stability, because they create the financial instability. And with more power, I just think it will get that much worse.
Dodd also wants to disallow any bank employee past or present to sit on the Federal Reserve's Board of Directors. Do you think that's a good idea? (For example, Jamie Dimon, JP Morgan's CEO, currently sits on the NY Federal Reserve's Board of Directors.)
Would that exclude people from Goldman Sachs and things like that?
I guess if I had an individual vote like that, I'd say, yes. I'd support that. But I wouldn't expect much to come of it.
The proposal would also have the President appoint (with Senate confirmation) the New York Fed president. Would you support that?
Yeah, I think so. If we're not gonna have my druthers and revamp the whole thing, and we have this system, yes. I think the President should appoint all of them -- all of the regional presidents too and have them confirmed by the Senate. Because they have a lot of influence. It's not really private. I think there should be more to say about the President appointing them as well. And there have been people that have made that argument from a constitutional viewpoint. But to me, that is not the most crucial thing, because I don't think there's authority in the constitution to have a central bank. But if the President appointed (the NY Fed President), I wouldn't object to that.