How the Fed make their money?

Early in the month, I read that two of the Federal Reserve's 12 regional bank presidents had been active traders, and that had prompted some of the central bank's most vocal critics to question the rules that allowed them to engage in the transactions in the first place. 

These guys have the power to slowly raise and quickly sink Wall Street, and with it, make tons of money for themselves, friends and family. I’d love to be Jerome Powell’s best friend or neighbor and get his insight, while I casually chat with him over our white picket fence.

Consider this, Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren made frequent or substantial trades in 2020, as reported by the Wall Street Journal and Bloomberg. The trades occurred during a year in which the central bank took major actions to keep the economy afloat and rescue the financial markets after both were almost sunk by the pandemic. 

Following the media revelations, Boston Fed President Eric Rosengren and Dallas’s Robert Kaplan on Thursday announced they’d sell their individual stock holdings by Sept. 30, in moves aimed at shutting down ethical concerns over their trading activity. 

This hasn’t quieted down critics that say that the situation should never have arisen in the first place and showed the crying need for some fundamental change to improve oversight and accountability. In a tweet, Democratic Senator Elizabeth Warren wrote : “I’ve said it before and will say it again: members of Congress and senior government officials should not be allowed to trade or own stocks. Period,”  

She’s absolutely right and it’s totally unacceptable that regional Feds can operate with less disclosure and scrutiny than all public officials, especially when they’re the ones in the know. Until now, Congressional efforts to revamp the Fed system haven’t gone very far. 

Regional Fed banks have lobbied effectively against changes by pointing out the benefits of a structure that prevents the central bank from being dominated by Wall Street or Washington. 

According to experts, a major restructuring of the Fed banks would require broader degree of political consensus on the role of the central bank than we currently have and a real Congress, not a bunch of sycophants. So just don’t count on it in the immediate future. 

Boy, I wish Powell were my next door neighbor. I’d even mow his lawn for free!