Episodes
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I submitted the above trailer as part of a podcast competition sponsored by Squarespace and Gimlet Creative. I also announce the end of Season 2. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
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Why the Meeting Minutes of the Federal Open Market Committee matter. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking, the centralverse.
On todayâs episode weâre going to talk about the FOMC Meeting Minutes, two reasons they were in the news this week, and an example of how much attention they get from financial markets the world over. But first a quick update about our new and exciting website - www.centralverse.org.
If you go to the site right now, youâll get an âunder constructionâ notice. However, as listeners to The Bankster Podcast I wanted to extend a special invitation to follow the link on the homepage of centralverse.org called âSign Upâ. Using your email address youâll be able to create an account and stay up to date at each step of the process as the Centralverse website grows and expands. There is also a voluntary option to include your phone number and receive the updates texted directly to you. By signing up via email or phone number youâll be able to contribute to the development of the site. What aspects of the Centralverse do you want explained? What questions do you have about how the Federal Reserve works? You can contribute or simply observe by signing up at www.centralverse.org.
Ok, onto the topic of todayâs episode - The FOMC Meeting Minutes and why they matter.
FOMC Meeting MinutesThe FOMC meeting minutes came up in two seperate threads of articles this week. For those of you unfamiliar with the idea of meeting minutes letâs give you something to compare it to. Imagine a spectrum of details about a meeting. The farther left you go on the spectrum the fewer details. The farther right you go on the spectrum the more details provided. On the far left side you may have super basic information like when and where the meeting occurred. On the far right side of the spectrum you may have information like a full transcript of every word spoken and action taken. On this spectrum, meeting minutes lie somewhere near the center. Meeting minutes are detailed notes about what was discussed, but they arenât full transcripts and in the Fedâs case there arenât direct quotes nor comments associated to specific individuals.
And thatâs actually where the first thread of articles came from. Hereâs a line from the minutes of the March 21st FOMC meeting, âwith regard to the medium-term outlook for monetary policy, all participants saw some further firming of the stance of monetary policy as likely to be warranted.â
To a casual reader, this sentence, albeit full of Centralverse language, is nothing particularly telling. However, to the observant Fed Watcher there is something strange about the word, âallâ. See, St Louis Fed President, James Bullard, is unique among his colleagues. His is the lowest dot on the dot plot. The one that doesnât increase into the future, which means he believes the optimal Federal Funds interest rate going forward is the one that we currently have. And he doesnât even participate by picking an optimal long-run rate.
So when the meeting minutes claim that âall participants sawâ Federal Funds rate increases in the near future, it caught Fed Watchers by surprise. This was brought to my attention by an article in the WSJ by Michael Derby. âFOMC minutes are one of the most important ways the central bank communicates with the public⊠[and] small changes can mean big things.â Shortly after the release of the meeting minutes President Bullard was asked what the meaning of the word, âallâ was in the sentence in the meeting minutes. He reported that he wasnât sure, but that his view of the optimal future path of policy hadnât changed - in other words he was ready to keep interest rates as they were. Now both his statement and the meeting minute notes suggesting that all FOMC members wanted to raise interest rates cannot be true at the same time.
Iâm not going to go into any more detail about whether the writer of the meeting minutes made an error or misinterpreted President Bullards stance. However, you can see that literally every single word in the meeting minutes matter.
Now onto the second mention of the meeting minutes this week. This time the comments revolved around meeting minutes that havenât been released yet. See, this past Wednesday, May 2, the FOMC had the final day of meetings for the period and announced that the current policy would not be changed. The target interest rate range would remain and the monthly amount by which the balance sheet is shrinking would also remain the same. The official statement basically said, ânothing to see here folks. Our thoughts havenât officially changed since last time we got together in March.â
However, and this is a very important however, that doesnât mean there wasnât useful information discussed in the actual FOMC meeting. And when and where will we find out more about this useful information? You guessed it, when the FOMC meeting minutes are released. The meeting minutes are released exactly three weeks after the FOMC meeting statement. So in about two and half weeks from the publication of the podcast we will get more information on the important conversations that took place at the meeting. For example, were there any hints or strong feelings expressed about how many more interest rate increases the committee expected for the calendar year? How far above 2% might the committee be willing to let inflation rise? Were there any more talks about changing policy frameworks like nominal GDP targeting replacing inflation targeting?
All of this - or at least hints will come out at the next release of the FOMC Meeting Minutes!
ConclusionTodayâs episode was written, edited, and produced by me, Alexander Bagehot. Go to www.thebanksterpodcast.com to sign up for the show notes and get in touch with me directly. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Episodes manquant?
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Intro
Welcome to the Bankster podcast, my name is Alexander Bagehot and Iâll be your host today. This is Episode 1 - Show No Signs of Panic. Every week we dive into the intricate world of central banking! I summarize the latest news and events catching you up on all things Federal Reserve and monetary policy from around the world. Then I take a more in depth look into a historical event or person that helped shape what central banking is today.
On this episode weâll talk about an experience that Marriner Eccles had as a banker in Utah before he became the 7th Chairman of the Federal Reserve. But first letâs catch you up on what happened this week in the Central-verse. And as an aside, because this is the first episode, Centralverse is not a real word yet, but itâs one that I have made up to describe the deep, fascinating, ever changing, and incredibly consequential world of central bankers and the economies they attempt to support. Iâll start the podcast with pretty simple terms and definitions and build upon that foundation as time goes on.
NewsAnd first we are going to start with a very important number in the central-verse. This past friday, at about 8:31am Eastern time my phone began to light up. Over the next 10 minutes or so I got notifications from CNN, WSJ, NYT, and The Economist - an unnecessarily high quantity of push feeds I have set up that on this occasion were sharing one simple piece of information. See, at 8:30am on the first friday of every month the Bureau of Labor Statistics releases their monthly âEmployment Situationâ report.
This is a 39 page report filled with interesting charts, graphs, and tables. However, it is almost universally summarized by one number - the national unemployment rate (which congress tells the Fed they need to maximize, or in other words keep as many people working as is sustainable). All of those notifications on my phone this time were informing me that the number was 5.0%. This number means of the 1000 people in the labor force there are 50 that are looking for a job and havenât found one. In later episodes we will dive into the significance and intricacies of this number, but for today weâll leave it at that.
Most market players and central bankers received the number relatively positively even though it was a slight uptick from last monthâs 4.9%. Think of it this way. In our 1000 people labor force example, last month 49 people were looking for a job. This month there were 50. But instead of thinking of this extra person as someone who lost their job, central bankers and market players read more of that 39 page report and found that this person is someone who was depressed, sitting on their couch, and not looking for a job in February, but in March they saw the economy strengthen got off the couch and started looking. They still havenât found a job yet, but they believe they can find one, so they are now in the labor force again.
Onto the second piece of news weâll cover this week. Central bankers wield an incredible amount of power over the economy. However, they are limited in the number of tools that they have. The foundational and textbook tool is the ability to signal to the market what interest rates should be, or at least which direction they should be moving. In the United States every six weeks a council convenes in the Eccles building (yes, named after the very Marriner Eccles that will learn about later in this episode).
At this meeting the 12 bank presidents and the 7 board of governors of the Federal Reserve System gather to discuss the condition of the national economy. Then a select number of them (more on that later) cast a very simple vote - what to do with interest rates (up/down/unchanged). So given that limited function what are some other options that central bankers have to progress their ideas or influence the economy? Well, one way is by giving public speeches. The 12 presidents and 7 governors frequently speak about their views and opinions about the economy.
This is a way for them to let the markets and policy makers know where they stand, what their next council vote might look like, and what they think the Fed should do in the future to foster a healthy economy. This week we heard from a number of officials. In just the seven days Iâm covering in this episode (March 30 - April 6) we heard from the presidents of the Fedâs in Boston, New York, Cleveland, Chicago, and St Louis. With the high quantity of speeches being given I wonât go through each of them or even mention the speeches every week. I will however, keep you up to date if the spirit or direction of the content of these speeches changes in a significant way.
This week there was a slight shift towards accommodative monetary policy, which for now we will crudely define as keeping interest rates lower for longer. For example, Loretta Mester, the president of the Federal Reserve Bank of Cleveland said she viewed the pace at which they will raise interest rates as, âslightly more gradual than the path [she] foresaw in Decemberâ. Similarly, Charlie Evans, President of the Chicago Fed said, âCurrently, I believe it will be appropriate to make two more rate hikes this year and then follow a very gradual path of rate increases thereafter.â These were two of the biggest voices of the week suggesting that the council that sets interest rates make gradual increases this year, a subtle, but important shift.
As the podcast continues youâll quickly learn that the Fed talks a lot about interest rates. Simply put, interest rates have a large impact on the two goals that congress told the Fed they are to shoot for (1) maximizing employment and (2) keeping prices stable. Lots more on those goals to come.
And now that weâve covered the new unemployment numbers and the slight shift in the monetary policy outlook of a few leaders of the Centralverse. We are going to dial the clocks back to 1931 - the setting, Utah; to a classic scene of the Great Depression - the eve of a bank run. After this short break.
Show No Signs of PanicAll of the information from this story came from Marriner Eccles autobiography, Beckoning Frontiers. Marriner Eccles, the oldest son of an immigrant family, was born in 1890. He was raised on the awe inspiring, western foothills of the Rocky Mountains, in the small town of Logan, Utah six years before Utah was made a state. Although his father had come from an impoverished family in Scotland he had achieved the American dream and was quite wealthy and owned a number of businesses. However, not wanting his children to quote, âgrow up in idleness or acquire a taste for easy livingâ Eccles father sent him to work in one of his lumber yards at eight years of age, âcarrying his weight in boxesâ where he would be paid, âThe rate of...five cents an hour for ten hoursâ work.â
His father not only wanted him to learn the lessons of a hard dayâs work, but he wanted Eccles to learn a business mind. In his autobiography, Beckoning Frontiers, Eccles says, âWhen I held in my hands the first fifty cents for a dayâs labor, my father offered a plan whereby I could be taught to follow in his footsteps and become a capitalist by curtailing the consumption of my current income. At the outset of that first summer he said that if I saved my money until I had one hundred dollars, he would sell me one share of Oregon Lumber Company stock.â (pg 27).
Now, I donât know about you, but I canât imagine being too inspired at the age of eight by the prospect of lifting boxes for ten hours a day so that I could buy stock in a lumber company. But Eccles stuck it through, and after three summerâs worth of work, he had earned enough to buy that stock and become, in the words of his father, âA capitalistâ.
Ecclesâ business aptitude would be put to the test sooner than he expected. Shortly after returning from serving a two year, two month mission for the Church of Jesus Christ of Latter Day Saints his father passed away suddenly. Eccles took substantial control of his fatherâs businesses and quickly expanded into a wide range of industries across the west. He was in everything from sugar mills, to railroads, to of course banking, and all this while still in his 20âs. Within the next decade his financial prowess had expanded into the creation of the first bank holding company (fed history bio of eccles), which owned and operated 15 banks in the intermountain west.
Now, if youâve followed any of the dates of Eccles life so far youâll see that he is unknowingly approaching, what is about to become a very dark chapter of American History, the Great Depression. The shock waves of the stock marketâs collapse on the east coast reverberated across the country and fear was spreading across communities in Utah. And this is where Eccles finds himself on the eve of what he knows will be a terrible day for banks in the state. It was Sunday, and Eccles had watched as a number of banks in the state had closed due to bank runs by depositors the previous week, including the old and highly regarded Ogden State Bank.
If youâve seen the movie, Itâs a Wonderful Life, you can picture the scene where the townspeople crowd into Jimmy Stewartâs bank, fear in their eyes, and demand their money back. Eccles was informed that the Ogden State Bank would not be opening for business the following day and he could expect to see a crowd at his bank the following morning. Ecclesâ banking knowhow would soon be put to the test, and youâll see how important the central bank is in times of stress like these.
See, to be honest, I think the words depression and recession actually miss out on one of the fundamental characteristics of an economic downturn, and thatâs why I prefer the term Panic. Because that is really what is happening. People that heard that Jimmy Stewartâs bank was going to close temporarily, panicked and wanted to pull out all of their money, which would have certainly caused the actual failure of his bank.
Similarly, in 2007 and 2008 it was fear in the short term innerbank lending market that led to a wider collapse in the economy. Now this isnât to say that some of the fear isnât justified, but what we do see, is that fear is very contagious and justified doubt about the health of bad institutions quickly spills over into unjustified doubt about healthy institutions and it becomes very difficult to know whoâs healthy and who isnât. But that, is one of the very jobs of a central bank. To lend to those that are healthy in the long run, but are in trouble in the moment because of the general panic of the day. So now letâs go back to 1931 and see what Eccles is going to do about the bank run he now knows is coming.
Early on Monday morning, he gathers the employees of the bank together and says, âIf you want to keep this bank open, you must do your part. Go about your business as though nothing unusual was happening. Smile, be pleasant, talk about the weather, show no signs of panic.â Eccles understood that in order to save his bank, he was going to have to change the fear and panic that his customers felt, into feelings of calm and trust.
His first strategy at accomplishing this was to slow the bankâs activity way down. He admitted, âWe canât break this run today. The best we can do is slow it down...in the past you did not have to look up...signatures, but today when they come...you are going to look up every signature card...when you pay out, donât use any big bills. Pay out in fives and tens, and count slowlyâ Shortly before three oâclock in the afternoon, the time at which the bank was supposed to close, Eccles gathered with the other leaders of the bank.
The implementation of his plan of earlier in the day had gone as hoped. Well, they had indeed paid out a minimum. However, looking around the bank, they all noted that the fear and the panic were strong as ever quote, âThe crowd in the bank was as taut as it was dense. Some people had been waiting for hours to draw out their money.â (pg 59). They admitted that, âif we tr[y] to close at three, there [is] no telling what might happen.â They decided to switch tactics. They would not close the bank at the regular hour, in fact they would stay open as long as was needed to satisfy the demands of the customers.
Ecclesâ hope was that people would see this as a sign of confidence that Ecclesâ had in his own bank. But in order to hold true to this promise, he would need help, because truthfully, he didnât have enough cash to honor everyoneâs deposit withdrawals if they were to ask, and he couldnât borrow any money from the other remaining banks in town because they were suffering from the same crisis panic.Again, quoting from Eccles autobiography, Iâll let him describe what he did next, âA call [was] put through to the Federal Reserve Bank in Salt Lake City to send currency to our Ogden banks as well as to all others in the First Security Corporation (the bank holding company that Eccles owned). The armored car that brought funds to us in Ogden arrived on the scene as in the movies when the Union cavalry charges in to save all from the Indians.
âThe guards strode through the crush inside the bank, and all made way before them...When [the deputy manager of the Federal Reserve Bank in Salt Lake City] entered our bank, I grabbed his arm and led him through the crowd to a black and gold marble counter in the officersâ section of the savings bank. Mounting the counter, I raised my hand and called for attention: âJust a minute!â There was instant silence. âJust a minute!â I repeated. âI want to make an announcement. It appears that we are having some difficulty handling our depositors with the speed to which you are accustomed.
âMany of you have been in line for a considerable time. I notice a lot of pushing and shoving and irritation. I just wanted to tell you that instead of closing at the usual hour of three oâclock, we have decided to stay open just as long as there is anyone who desires to withdraw his deposit or make one. Therefore, you people who have just come in can return later this afternoon or evening if you wish. There is no justification for the excitement or apparent panicky attitude on the part of some depositors.
âAs all of you have seen, we have just had brought up from Salt Lake City a large amount of currency that will take care of all your requirements. There is plenty more where that came from. And if you donât believe me,â I continued, âI have here...Morgan Craft, one of the officers of the Federal Reserve Bank, who has just come up in an armored car. Mr. Craft, say a few words to the folks.
âI pulled him up to the top of the counter, âI just want to verify what Mr. Eccles has told you,â he said. âI want to assure you that we have brought up a lot of currency and there is plenty more where that came from.â And listen closely to what Eccles says next, for it is the key, first takeaway I hope you gather about central bankingâs role in the world. âThe mood of the day was so unreasoning that men were heartened by words as meaningless as those which caused them fright.
âIn a split instant the faces before me relaxed in relief. The edge in all voices seemed to vanish. Some people stepped out of line and left the bank. And a happy buzz replaced the waspish one heard earlier...On Tuesday customers came into the doorway of the bank, looked furtively around the lobby, and, seeing that things were peaceful and serene, walked away. And that was the end of that run.â
It would be a number of years before Eccles would join the Federal Reserve and eventually serve as the 7th Chairman of the board. But the lessons he would learn that fateful day would become vital to his term as leader of the Federal Reserve.
ConclusionI am not explaining every intricacy or every detail about the news or about the workings of the Centralverse; however, I hope that if you stick with the podcast the world of Central Banking will open up and youâll realize the incredible dance that the central bankers are performing with market men and women, with policy makers, and with anyone that plays a part in this economy...which, frankly, if you are listening to this podcast you are playing a part in the economy! I hope that today you picked up on the importance of the words of Central Bankers (whether prepared remarks by todayâs Fed presidents or countertop impromptu speeches by Fed leaders of the 1930âs).
Central Bankers have made mistakes, and unfortunately Eccles experience during the depression with the Federal Reserve was somewhat uncommon. But whatever your thoughts about the power of the Central Bank I hope that youâll gain a deeper understanding of how it works, what itâs doing, and most importantly, why itâs doing it.
Reach out with comments, recommendations, or questions about the The Bankster Podcast or the Centralverse in general. You can email me at [email protected]. Find me on twitter at the handle alexbagehot (thatâs alexbagehot). At my website www.thebanksterpodcast.com you can find a transcript of todayâs episode with links to all of the sources I used in creating the content. And check back in to the website over the next few weeks as it will be growing and expanding tremendously! Youâll find it an ever more useful source for all things Centralverse.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. I dedicate this episode to Ira Glass, my first radio hero. And to all of you, my first weekâs audience, thanks for listening. Iâm Alexander Bagehot, and Iâll see you next time on The Bankster Podcast!
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Of equal importance to the final decision of the next New York Fed President is the process by which this decision was made. Today we unwind that complex process. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
A change in the guard of any institution is always accompanied with an invitation to take a look into the heart of an organization. The last year at the Federal Reserve has seen a lot of such changes, and Iâd argue that the full change of the guard will be complete with the replacement of the current President of the Federal Reserve Bank of New York. In November Bill Dudley announced that he would be retiring from his post as leader of the New York Fed in the summer of 2018. On todayâs episode Iâm hearkening back to the roots and foundation of The Bankster Podcast - summarizing, translating, and explaining the complexities of the Centralverse. Todayâs complexity - the NY Fed Presidential selection process.
This episode is especially timely, not only due to the announcement of its conclusion just a few days ago, but also because the process was scrutinized and questioned more fiercely than in the past. So first I will break down the process and then Iâll end the episode by pointing out the two biggest complaints and a few of the proposed amendments to the process.
Episode NotesNY Fedâs official description
Remember that the âFederalâ in Federal Reserve System comes from the combination of centralized, government appointed leadership in Washington DC (7 of them) and the somewhat independent Reserve Banks (12 of them) spread geographically across the country. These somewhat independent Reserve Banks are chartered similarly to that of a regular corporation. There is a Board of Directors, chosen in part by the shareholders of the Reserve Bank. The Board of Directors, in turn, choose the Executives. So when, back in November, Bill Dudley announced heâd be leaving his post as President of the New York Fed we turned to the Board of Directors. As outlined in the Federal Reserve Act (most recently amended by the Dodd Frank financial reform act of 2010) there are to be 9 directors at the Reserve Bank. They break down, at the New York Fed, as follows.
9 directors, broken up into three classes: A, B, C. And there are two characteristics that distinguish each of the three classes: (1) who chooses them and (2) who are they to represent.
A = Three Bankers chosen by the local banks.
CEO of Morgan Stanley (chosen by the large banks, representing the banks)
Chairman of Valley National Bank (chosen by the medium size banks, representing the banks)
CEO of Solvay Bank (chosen by the small banks, representing the banks)
B = Three leaders from the public to represent the public chosen by the local banks. (agriculture, commerce, industry, services, labor and consumers)
Co-Founder of a Financial Services Technology Private Equity firm
CEO of a business software company
Until a few weeks ago, the Chairman of an aerospace and auto technology company (this is the one that stepped down a few weeks ago)
C = Three leaders from the public to represent the public chosen by the Board of Governors.
Founder and Executive Director of the Freelancers Union
Executive Vice President of a Community Development Organization
Founder and CEO of a Community Health and Housing Provider
So those nine directors make up the Board of Directors of the NY Fed.
The three bankers from Class A (bankers chosen by bankers) donât get to participate at all
Eligible Class B (meaning those public leaders chosen by bankers with no conflict of interest) and all Class C Directors (public leaders chosen by the Board of Governors) can participate
The eligible Class B and the Class C then choose who will be on the committee
They initially chose 4, 2 Class B and 2 Class C (now down to 1 Class B and 2 Class C)
Then the Committee goes to work
âLooking for Technical and Personalâ in video introduction âlistening to communities, not just candidatesâ
External search firms - for example the NY search committee selected two search firms
Spencer Stuart
Founded in 1956 with a global search mindset, the firm now has offices in 30 different countries. Official site.
Bridge Partners
Much smaller firm, founded in 2003, with a specific goal of providing diverse candidates
Committee sent their pick, John Williams, to responsible Directors (The six Class B and Class C Directors - really just 5 at this stage)
Responsible Directors voted in favor of John Williams, whose name was then sent to BOG for final approval
The final step, as outlined in the Act says, the appointment of President is made, âWith the approval of the Board of Governors of the Federal Reserve Systemâ (4.4.6).
In regards to what that âwith approvalâ actually means, Peter Conti-Brown, one of my favorite Fed commentators tweeted, âItâs a maddeningly ambiguous legal structure that sometimes means rubber stamp and sometimes means BOG control. We could use some clarity.â (tweet)
In that vein, Reuters reported on March 1st that, âPowell was playing a larger role than his predecessors in making his views known to the...New York FedâŠnoting he... stressed monetary policy expertise and...discussed specific names.â link
So although I am not privy to the inside conversations that took place within the walls of the Fed or with those who they interviewed; I can say that the conversations took place within the selection process framework that Iâve outlined here.
Two camps of complaints:John Williams is another older white guy
Self inflicted wound by the committee making such a big statement about seeking for diversity.
He doesnât have market experience
Damned if you do damned if you donât
Recommendations for changingRelease candidate list
Testify before Senate (Elizabeth Warren)
Be confirmed by Senate
Be presidentially appointed, senate confirmed
ConclusionAnd thatâs a wrap. I hope you were able to keep up today. There was a lot of information, and the process is anything but clear and concise. But of equal importance to the actual final decision is the process by which this decision was made. So when you hear about the outgoing or incoming President of the New York Fed, John Williams, you will now have some background on what went on behind the scenes for him to be selected.
And speaking of explaining the complicated aspects of the Centralverse, I have some excited news. My brother and I have been hard at working creating the next chapter in the journey that began almost exactly two years ago with the first episode of this podcast. The next chapter will be found on www.centralverse.org. The site is still under construction, and thatâs pretty much all youâll see if you go there now. However, if you want early access to the Beta version, send an email to [email protected]. Iâll be announcing updates to the website here on this podcast at the end of each episode going forward. Iâm super excited about what weâre doing there, and I know that it will serve as an excellent resource and tool for all of you Fed Watchers and anyone interested in understanding how the world works in general.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Go to www.thebanksterpodcast.com to sign up for the show notes and get in touch with me directly. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Too many important events of the past two weeks, so weâve started a new series called News Flash. Todayâs Flashes include: Bear Stearns, The Senate Dodd Frank Bill, NYFedâs Presidential Search, and the FOMC meeting. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
I really enjoyed the responses on Twitter to the last episode of the podcast about the entertaining video produced by the Central Bank of Sweden to celebrate their 350th birthday. I was sent a few other central banking videos, my favorite of which was one produced by the Central Bank of Indonesia. Featuring a catchy tune that was stuck in my head for days, the song follows a singer as she dances around a local market showing people some of the new security features in the Indonesian currency, the rupiah.
Now, a lot happened in the Centralverse in between the release of the last episode and today, and there are numerous ways to keep up with the Centralverse on a more frequent basis than the biweekly Bankster Podcast; however, between the unbelievable short attention span of the political news cycle and the March Madness basketball tournament this month, itâs very possible that you missed some of the big news coming out of the Centralverse. So Iâm introducing a new section of the Podcast today called, News Flash. In each News Flash Iâll quickly go through the key Centralverse events of the previous weeks that you may have missed.
One of the key goals of The Bankster Podcast and the website Centralverse.org is not only to share with you the latest news from the Federal Reserve and other central banks from around the world - itâs bigger than that. We want to enable you to follow them and keep up to date on your own. So a key part of this new section - News Flash will be not only sharing the actual news but also the key sources of the information that I used. Not only will we share the information with you but how we got the information in real time so you can be ahead of the Centralverse curve in the future. Today, four flashes: Bear Stearns, Dodd Frank, NYFedâs presidential search, and this weekâs FOMC meeting.
Bear StearnsFlash One:10 years ago this month one of the oldest Investment Banks in the country collapsed. Bear Stearns, founded in 1923, by 2007 had grown into what Forbes called the second most admired securities companies in the industry. Itâs stock price was trading at above $170 per share and things were looking bright. Within a year that bright future would turn into a Wall Street nightmare. The company had been heavily leveraged in the mortgage securitization market (go read the Michael Lewis book and then watch the movie the Big Short to learn about mortgage securitization). Anyways, basically, when the US housing market collapsed Bear Stearns was stuck in serious trouble. Things got so bad so quickly that a fire sale was required to keep the company from having to file for bankruptcy, which would have brought the rest of the market down with it (not unlike what happened when a few months later Lehman Brothers, another investment bank did in fact file for bankruptcy). The troubled Bear Stearns was sold to JP Morgan for a meager $10 per share in March of 2008.
Source One:Planet Money Indicator episode from March 16, 2018
House of Cards, book by William Cohan
The Senate Dodd Frank bill Flash Two:The US Senate passed a bill amending the financial reform bill that had passed after the Great Recession called the Dodd Frank act. The basic premise of the bill is to raise the regulatory thresholds. One principle in banking regulation is that the bigger the bank the more strict the regulations are. Banks are traditionally divided into three categories: community banks, regional banks, and large banks. The thresholds currently stand at about $0-10B, $10-50B, and $50+. An oversimplified summary of the changes that the Senateâs bill would do is raise those thresholds. That means that fewer banks would be classified as large and regional banks. The idea being that those banks that move down a level will see a decrease in regulatory oversight.
Source Two:Politico article by Zachary Warmbrodt and Victoria Guida who I follow on Twitter
NYFedâs presidential search
Flash Three:The New York Fed announced that they have narrowed the search for the next President of the New York Fed down to just âa handful of candidatesâ. On the whole this news was greeted with somewhat perplexed expressions. From one camp there came the general sentiment that this was very much an un-announcement announcement, meaning they didnât really announce anything we didnât already know. And from a second somewhat stronger attitude camp resurged the proposal that the process by which Reserve Bank presidents are chosen is very opaque and needs to be updated. In order to fully understand this issue you have to understand how the Board of Directors at Reserve Banks work. Head back to episode 18 to get the full scoop on who the Directors are and what they can and cannot do. There was actually one other interesting twist that came out a day or two after the announcement that they had narrowed down the field. One of the Directors who had been on the search committee was resigning, most likely because he will be going to work for a financial institution. That really got the second camp of people concerned with the process worked up.
Source Three:NY Fedâs twitter feed
An additional update regarding one of the board of directors on the search committee resigned - email notification
FOMC meeting
Flash Four:As expected raised the Fed Funds Target range by 25 basis points, which means by one quarter of one percent, to 1.50-1.75. That means on Friday the reported overnight bank funding rate will probably be about 1.64.
Economic Projections included: 7 participants who think there will be a total of 4 or more rate hikes this year and 8 thought there would be 3 or less.
Jay Powellâs first press conference as Chair. It felt like half of the questions involved these economic projections and he reiterated in a dozen different ways the important note about the projections - itâs important to not put too much stock in the median. Each of the current FOMC voters has their own models and forecasts of what the Fed should do (note that itâs not what the Fed will do). Head back to episode 9 to get an overview of the Dot Plot and then episode 20 to really learn about the important nuances in interpreting the Dot Plot.
Source Four:Eight news notifications (WP, WSJ 2x, Bloomberg, Yahoo 2x, NYT, Chi Tribune)
Board of Governorâs email notification for the statement and economic projections
CSPAN, MSNBC, or any business news channel for live-streamed press conference
ConclusionYou probably wonât use all of these sources. Your level of interest in being at the cutting edge of Centralverse information may not be as high as mine. Thatâs ok. I hope that this episode and the future News Flash episodes will give you a broader look at how I keep up with the Centralverse, and how you can keep up on your own, whatever your level of interest. Remember that Central Banks wield exceptional power. And as the example of Flash Three today about the New York Fedâs process of selecting a new president shows, sometimes keeping track of what is happening at a Central Bank is not as easy as other parts of the government. Thatâs in part because the founders of the Federal Reserve designed it as such. However, it doesnât mean we canât follow and observe closely. Not only is it interesting for interest's sake, but it affects our finances and therefore our lives in very real ways. And thatâs why theyâre worth following. Sign up for the newsletter where Iâll send you one email per episode outlining the sources cited and how you can become a Fed Watcher yourself.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Go to www.thebanksterpodcast.com to sign up for the show notes and get in touch with me directly. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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A Riksbanken video gave me a good laugh, and a 350th birthday is cause for celebration and reflection. On todayâs episode: (1) very briefly how did it start. (2) its relationship with the Euro. (3) its policy goals. (4) and finally its role in the Nobel Prize of Economics. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
A light-hearted video came across my twitter feed last week. The audio and subtitles were in a nordic sounding language that I didnât understand. And it took me a surprisingly long 10 minutes to find a version with English subtitles. The 55 second video is called, âStefan Ingves orders 350 birthday cakeâ and follows the leader of the Swedish Central Bank called the Riksbanken. As the Governor concludes an executive committee meeting, a woman from the committee turns to Governor Ingves and says, âI had one more thing, what about the birthday cake?â And after a brief pause the Governor responds, âYes, I can take care of that.â
The scene then turns to Governor Ingves in his office on the phone with a bakery. âHow much does a ten piece birthday cake cost?â he asks. âDo you charge extra if I want something written on the cake?â
His first request, âSveriges Riksbank 350 yearsâ is much too expensive, âPer letter?â he questions in exasperation. âOk, letâs just do Riksbank 350 yearsâ he tries, getting a second estimate. âActually,â he adds, âwe could skip years - just write Riksbank 350. That will be enough.â The scene cuts to a simple navy blue cake with striped candles and the shortened celebratory phrase, âRiksbank 350â. With a final few jovial chords the video ends.
The video made me laugh and Iâll include a link in show notes to todayâs episode. Which by the way, itâs been a few months since Iâve given a plug to the email newsletter. Itâs a very simple email that accompanies each episode. Itâs a great way to dive deeper into the material covered in the Centralverse. You can sign up for the newsletter at the website www.thebanksterpodcast.com.
Anyways, besides making me laugh the short clip reminded me of a few other efforts and news headlines in regards to central bank communication. The Fed recently released a new whiteboard video drawing out some Fed 101 basics. And as a professor from Georgetown pointed out to me on twitter, a recent interview video from the Bank of England about how money is created in the modern economy was even short-listed for a best documentary award.
Central Banks have been historically high-browed, difficult to read and understand institutions. They have worn their unofficial, apolitical technocrat title as a badge of honor. And have taken great pride in the opacity of their statements and actions. Alan Greenspan, more about him in the previous episode, told one congressman, ââIf I seem unduly clear to you, you must have misunderstood what I saidâ and to another, âI know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant,â (as quoted in Chapter 22 of Sebastian Mallabyâs book, âThe Man Who Knewâ). Those sentences are tongue in cheek incomprehensible.
This is just one example of the sentiment about Central Banking communication just 20 years ago. Central Banks are slowly starting to reach out to the broader public and are beginning to realize that an understanding of the roles and functions of the central bank might be beneficial. The bar for good communication is pretty darn low - for example the Federal Reserve, late last year, made an upgrade to their website bringing it from early 1990âs website aesthetics to the early 2000âs at most in my humble and irrelevant opinion.
But anyways, the Riksbanken video gave me a good laugh, and a 350th birthday is cause for celebration and reflection. So thatâs what weâll do for the rest of todayâs episode. (1) very briefly how did it start. (2) its relationship with the Euro. (3) its policy goals. (4) and finally its role in the Nobel Prize of Economics.
How did it start?Oldest Central Bank in the world, started in 1668. But the foundation for the bank was actually started a little over a decade earlier, in 1656, with a man named Johan Palmstruch. The bank was created to help fund the wars of Charles X Gustavâs. It was called Stockholms Banco and it had quite the successful run. Heavy metal plates were being used at the time as money, and Stockholms Banco allowed citizens to deposit the metal plates at the Bank in exchange for a âreceipt of depositâ, which they could then turn around and use as money. According to the official website of Riksbanken these were the first bank notes in all of Europe.
This continued for a few years, but the bank stopped using the amount of copper plates they had in the vaults when deciding how many banknotes to issue. Fear spread about the true value of the banknotes and what we now know today as a classic bank run began. The run not only devastated the bank but it devastated the life of Johan Palmstruch. According to the official history from the Riksbanken website, âOn 22 July 1668 Palmstruch was dismissed as director and sentenced to the loss of his privileges. He was banished for life and ordered to compensate within six months for âall the deficiency and shortage in the Bank that can demonstrably be provenâ. If he failed to pay what he owed, he would be executed. The Council considered the sentence [7 months later] and some members clearly found it too harsh. Palmstruch was reprieved but would remain in jail. Chancellor De la Gardie came to his support and argued ... that Palmstruch be released, which he was. He died a year later.â
Although Stockholm Banco and its founder came to a tragic ending, the benefits and potential of a strong bank were not lost on those in power at the time. A longer video, produced by the Riksbanken, summarizing the 350 year history put it this way, âThe aristocracy had discovered that a bank was rather convenient, so they got the support of priests and the bourgeoisie to start a new bank in 1668.â And thus, out of the ashes of the Palmstruchâs failed bank, a new one was born - the Riksbanken, celebrating its 350 birthday this year.
The Riksbankenâs relationship with the European Central Bank.Now, unfortunately due to my rather shallow understanding of the structure and format of the ECB and the Euro in general, this part turned out to be a little bit more complicated than I expected. See, Sweden is a member of the European Union; however, they are not part of the Euro Area. The Euro Area refers to the use of the shared currency, the Euro. So Sweden is part of the political body of the European Union but they use their own currency, the Swedish Krona. And because the principal role of a Central Bank is to control the supply of currency, Riksbanken is not a member of the European Central Bank. However, just to confuse us over here across the pond, there is a another group called the European System of Central Banks that combines the European Central Bank members as well as the National Central Banks of countries that are in the European Union but not in the European Area.
Holy Macaroli! Thatâs enough of that for one episode. Basically, the relationship status of the Riksbanken and the ECB on Facebook would be âitâs complicatedâ. Besides giving me a slight headache trying to keep track of all of the different versions of these European groups - it reminded me that the Bankster Podcast hasnât done an episode about the European Central Bank. This will be remedied! I have a lot to learn, but Iâll bring you along as I do so.
The policy goals of the Riksbanken.Now that Iâve demonstrated my lack of understanding of the European Central Bank youâll see why this third point was of interest to me. See, the Federal Reserveâs two main goals (known as the dual mandate, also quick sidebar - I will do an episode about the lesser known mandates of the Federal Reserve at some point as well). Anyways, the Fed has twin goals of maintaining maximum employment and a 2% inflation rate. In the Centralverse this dual mandate is actually the exception and not the rule. The Riksbanken, like most central banks in the world, actually only have one official goal - inflation targeting.
At the bottom of each page on the Riksbankenâs website is the phrase, âWe ensure that money retains its valueâŠâ
The Nobel prize50 years ago, on the 300th birthday of the Riksbanken the central bank made a donation to the Nobel Foundation. This donation was used to create the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Although the prize in economics was not included in the original list of Nobelâs, it has been treated as such since the Riksbanken brought it to life 50 years ago. If you had heard of the Swedish Central Bank before this episode chances are this is where youâd heard it from.
ConclusionAnd that concludes todayâs episode! Happy Birthday to you Riksbanken. We just cracked the surface today, but we covered a lot of ground: from a very brief version of its origin story, its relationship with the Euro, its policy goals, to its role in the Nobel Prize of Economics. Hereâs to more content from the Centralverse like the little video of Stefan Ingves ordering the birthday cake.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Go to www.thebanksterpodcast.com to sign up for the show notes, so you can get direct links to all the great content used in todayâs episode. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Global equity markets dropped drastically on Jerome Powellâs first day at the Federal Reserve. When markets quiver a question youâll hear analysts and journalists bring up is, âWill the Chair use the Greenspan Put?â On todayâs episode, a brief primer on the Greenspan Put. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Global equity markets dropped drastically on Jerome Powellâs first day at the Federal Reserve. When markets quiver a question youâll hear analysts and journalists bring up is, âWill the Chair use the Greenspan Put?â On todayâs episode, a brief primer on the Greenspan Put.
A quick definition first and then a breakdown of each part.
Definition Greenspan Put
The Fed will ease monetary policy conditions to help prevent financial market downturns. In even simpler terms, the Fed will save the stock market whenever it starts to go down.
Who is Greenspan?
Chairman of the Federal Reserve 1987-2006
During the time while Greenspan was Chairman, the US economy grew at a historically remarkable, consistent, healthy pace. In fact economic historians refer to the time period from the mid-80âs to 2007 as âThe Great Moderationâ. This extended stable growth turned Greenspan and the position of Chair of the Federal Reserve from a quite technocrat position to the ever press worthy position it is today, spurred on by the new 24 hour cable news recently introduced at the time.
Sebastian Mallaby, in his excellent book The Man Who Knew, describes it this way, âAs American prosperity advanced, the cable business-news network CNBC gained traction with a fetching gimmick. On mornings when the FOMC was due to meet, a camera crew would lie in wait outside the Fed building. When the powerful figure of the Fed chairman hove into viewâpin-striped, proceeding purposefully, curled-top briefcase in one handâa telephoto close-up would interrogate his face. If Greenspan looked tense, the network would couple the footage with the suspenseful theme tune from Mission Impossible, the old CBS TV series recently remade as a shoot-âem-up movie. If Greenspan looked carefree, the producers might roll out Jean Knightâs jaunty soul hit, âMr. Big Stuff.â Then the camera lens would home in on that briefcase, swinging lightly in the Fed chairmanâs hand.â Head back to the episode on communication to hear more about the briefcase theory. Anyways, one more relevant comment to make about Greenspan that was also noted in Mallabyâs book.
ââHow many central bankers does it take to screw in a lightbulb?â went a joke of the time. âOne,â the answer went: âGreenspan holds the bulb and the world revolves around him.â
So thatâs who Greenspan was, the namesake of the Greenspan Put. Now onto the next part, what is a put?
What is a put?
An option: Financial instrument used to make bets about the future price of something. There are two types of options: (1) for if you think the price will go up PUT and (2) for if you think the price will go down CALL.
Hereâs an example of a simple put. You believe that Amazon stock, currently worth about $1,500 will go up to $2,000 by July, but you donât want to actually buy the stock, wait until the price goes up, and then sell it (which would be the normal way youâd think of making money from investing). Instead you could buy a put, which would give you the option to buy Amazon stock for say $1,800 at any time before July. You pay a fee at the beginning and then you can buy Amazon whenever you want. So what you would do is you would wait until you the price of Amazon got to $2,000 then youâd exercise your option and buy it at $1,800 and then you could immediately turn around and sell it on the market for $2,00 and take home the $200. Now this is an oversimplification but hopefully it helps you understand that a put option can be used to make bets that the price of something will go up.
Putting them together: The Greenspan Put
The success of the financial market expansion of the US economy was often associated with the leadership of Alan Greenspan. It was viewed that he would rescue the stock market if anything bad happened. This came mostly from an experience in 1998 when an incredibly massive hedge fund called Long-Term Capital Management almost imploded. Greenspan organized a private recapitalization and announced a lowering of interest rates in response.
The idea that formed was that Greenspan and the Federal Reserve would act like they had bought a put option on the US stock market. They were betting that the US stock market would continue to grow. And a bet from the most powerful financial institution in the world is a bet worth mimicking.
In summary, youâll hear the term Greenspan Put used anytime there is a downturn in the stock market. Iâve seen it a number of times in the last few weeks as market turmoil has been much higher than it has been for a few years. And now you know that they are simply referring to the idea that the Fed is going to do something to keep stocks from going down.
To end todayâs episode, I want to emphasize that keeping the stock market going up and up is not a direct goal of the Federal Reserve or any central bank. Their very high level goal is to keep economies healthy. Sometimes the economy and the stock market are moving in the same direction and sometimes they are not. In fact the underlying numbers of the economy have been very solid recently even as the stock market has gone down. But now youâll understand the background when you see or hear the Greenspan Put.
ConclusionIf you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com. Donât forget on the website you can sign up to receive my short email newsletter accompanying each biweekly episode.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Round V of the listener favorite, Centralverse Q&A: Who really chooses the Chair? And who is second in command at the Central Bank? If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Between this episode and the priorâs there was a changing of the guard here at the Central Bank of the United States. Jerome Powell was sworn in as the new Chair of the Federal Reserve. As we described in the last episode, Janet Yellenâs final day was February the 3rd. We found out what Janet will be doing somewhat sooner than I had even hoped. David Wessel, a Senior Fellow at the Brookings Institute, a public policy think tank in Washington DC, announced that Janet Yellen will be joining the previous Fed Chair, Ben Bernanke at Brookings. In the announcement he wrote, âWeâre looking forward to helping Dr. Yellen reflect on her impressive career, to working with her as she continues to advance the state of economic knowledge, and to benefitting from her advice as we work to improve the quality and effectiveness of fiscal and monetary policies and public understanding of them.â Thatâs a good sign that a memoir will be in the works. Bernankeâs memoir was released about a year and a half after his term ended. Iâm crossing my fingers Janet Yellenâs doesnât take too much longer than that!
The changes to the upper echelons of leadership at the Federal Reserve over the last few weeks and months inspired both of the questions in todayâs edition of Centralverse Q&A. So without anymore delay letâs jump right in.
Question #1Who really chooses the Chair?
Background #1On many a previous episode of The Bankster Podcast we have reviewed the process by which the President of the United States nominates and then the Senate confirms an individual to serve as Chair of the Federal Reserve System. It therefore caught me off guard when I got a tweet from the Fedâs official handle @federalreserve, âThe #FOMC this week unanimously selected Jerome H. Powell to serve as its Chairman, effective February 3â.
Wait, what about the President and Congress?
Short Answer #1Shout-out to Sarah Binder, co-author with Mark Spindel of the excellent book The Myth of Independence, for the quick response on twitter when I sent my question out to the wonderful Central Banking corner of Twitter. Her response in effect was, the position the President and the Congress are involved in is that of Chair of the Federal Reserve System - not the FOMC.
Long Answer #1In more detail, the Federal Reserve Act describes how the Chair of the Federal Reserve as a whole is chosen. However, the FOMC, as the committee within the Fed, made up of all of the Governors and the twelve Reserve Bank Presidents, was not added to the Federal Reserve Act until 1935 and the process of choosing leadership for the committee was not explicitly defined in the Act. So like it works in most committees, the members themselves choose the leadership. However, in the more than 80 years since the formalization of the FOMC they have always chosen the Chair of the System to be the Chair of the FOMC.
Now that weâve nailed down the full process for the Chair letâs move onto the next question.
Question #2Who is second in command at the Central Bank?
Short Answer #2Quite surprisingly there are four second in command positions at the US Central Bank.
Vice Chair of the Federal Reserve System
Vice Chair of the FOMC
Vice Chair of the Federal Reserve System for Supervision and Regulation
First Vice President
Long Answer #2Hereâs a little more information about these second in command positions and who is in them
Vice Chair of the Federal Reserve System
This position is the traditional right hand of the Chair in respects to the system as a whole.
Vice Chair of the FOMC
This person sits right next to the Chair at the FOMC meetings, and has historically always been the President of the Federal Reserve Bank of New York, Bill Dudley for now, although heâs retiring so there will be a new Vice Chair of the FOMC by the end of the year we expect.
Vice Chair of the Federal Reserve System for Supervision and Regulation
This is a new position created by the Dodd Frank Act, which was the regulation passed in 2010 in response to the Great Recession. The Obama era nominees for this position couldnât get past the congressional, partisan gridlock so the position went unfilled until just a few months ago when Randal Quarles was sworn in as the first Vice Chair for Supervision and Regulation.
First Vice President
Most of them are more operational focused. However, some, like Minneapolis First Vice President is Ron Feldman who has written pretty extensively in academia on the Too Big To Fail problem.
ConclusionIf you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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As Janet Yellen leaves on her final day as Chair of the Federal Reserve System we take a look back at the last complicated transition from one Chair to the next - that of Marriner Eccles 70 years ago to the day. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
On February 3rd Janet Yellen will walk out of the Federal Reserve for the last time as Chairwoman of the most important financial institution in the world. Herâs was a career of firsts. But in an uncomfortable ending to a term as Chair she is not alone. In fact, exactly 70 years to the day, February 3rd, 1948 Marriner Eccles ended his term as Chair of the Federal Reserve.
As I was rereading about Ecclesâ experience, I couldnât help but see striking parallels to the end of Janet Yellenâs incredible term as Chair. So for todayâs episode Iâm going to share a dramatic reading of a few pages from the biography of Marriner Eccles, written by Sidney Hyman.
ConclusionAs always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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A look at the State of the Federal Reserve in 2018. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
A notable part of every January here in the United State is the Presidentâs address to congress called the State of the Union. Itâs a speech that fulfills a requirement in the US Constitution, Article II, Section 3 to be exact. It says, â[The President] shall from time to time give to the Congress information of the State of the Unionâ. Itâs a good way for an agenda to be outlined and aspirations for the year to be shared.
In honor of that tradition today Iâm going to give a few basics that might be included in a State of the Federal Reserve 2018. My State of the Union will be less aspirational/what I think the Fed should be doing. Itâll be more foundational, more what is the State of the Fed, literally. But it will be fun to share a few of my thoughts regarding the current shape of the Federal Reserve and what to expect this year. So with that letâs jump right in.
OutlineVacancies and nominations
Chair: Jerome Powell (nominated, 2022)
Will he continue Yellenâs policies as is predicted?
Will he be open to loosening regulations?
Will he maintain relatively positive relationship with congress/president?
Vice Chair: Vacant
Vice Chair Supervision: Randal Quarles ( Jan 2018, renominated)
Gov: Lael Brainard (2026)
Gov: Marvin Goodfriend (nominated)
Gov: Vacant
Gov: Vacant
8 collective years of experience on BOG, Trump will nominate 6 of 7
NY Fed President: Bill Dudley leaving (search underway expected 2018)
Richmond: Thomas Barkin (started Jan 2018 to replace Lacker who resigned)
Atlanta: Raphael Bostic (started June 2017)
FOMC rotation
Cleveland (Chicago)
Richmond (Boston, Philadelphia) - Barkin first time voter
Atlanta (St Louis, Dallas) - Bostic first time voter
San Francisco (Kansas City, Minneapolis)
(9 of the 12 voting members might be new by the end of the year)
Interest rate increases
December Dot Plot has a median estimate of 3 increases (6 for the median, 6 below, 4 above)
As of today, futures markets (people betting on what the rate will be) have about â chances there will be 2 increases, â chances there will be 3 increases and the remaining third divided evenly above and below
December minutes show tax might make them want to raise sooner
Inflation still coming in under the 2% target - and you have a number of officials warning caution on raising rates too fast without reason
Yellen steps down
Academia
Corporate Boards
Nonprofit Boards
Think Tanks
Public sector, IMF, World Bank, Government position
Genuinely retire (age 71, Econ Nobel Laureate husband, PhD Econ Son whoâs teaching at University of Warwick in UK)
Write book
ConclusionIn conclusion - 2018 will be an exciting year in the Centralverse. The Board of Governors will be full of Trump nominees. The NY president will be new as well as a few other bank presidents, including two new voting members of the FOMC from Atlanta and Richmond. Barring some kind of surprise, unforeseen economic downturn, the Fed (and most developed economies Central Banks) will raise interest rates (by how much only time will tell), and finally we will see the end of the historic Chairwomanship of Janet Yellen. Let me know your thoughts about the coming year. Iâm especially looking for more great books on Central Banking past and present. Send in your ideas!
As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Round IV of the listener favorite, Centralverse Q&A: What does the CFPB have to do with the Federal Reserve? Who is Marvin Goodfriend? If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
There have been some big news that have come out somewhat on the peripheral of the Centralverse over the last few weeks. News that doesnât reach the very top of Centralverse leadership or news that is Centralverse related once removed frequently doesnât get the translation necessary for understanding in the regular news cycle. You may hear a name or an institution and in the story they may mention the Fed or another Central Bank, but rarely is there enough time or, frankly knowledge, on the reporters side to make the full connection to the Centralverse. And thatâs where The Bankster Podcast comes in to bridge the gap. On todayâs episode: (1) What does the CFPB have to do with the Federal Reserve? And (2) Who is Marvin Goodfriend?
Remember that on Centralverse Q&A each topic gets a question, a background story, a short answer, and a long answer. So letâs dive right in.
Question #1What does the CFPB have to do with the Federal Reserve?
Background #1The Consumer Financial Protection Bureau (or CFPB) saw about as much drama last week as any government agency can see. The agency was created as part of the financial regulation act that was passed in response to the Great Recession. The Act was called the Dodd-Frank Wall Street Reform and Consumer Protection Act. The creation of the CFPB was a big part of the âConsumer Protectionâ portion of the law.
Last week two people showed up on Monday morning claiming to be the Acting Director of the agency. One of them arrived before 7am and shot out an email to staff welcoming them back from the Thanksgiving holiday. The other arrived shortly after the first, and with a box of donuts in hand, walked around introducing himself as the Acting Director.
The first was Leandra English, the former Chief of Staff to the previous Director who resigned the Friday before. The second was Mick Mulvaney, Director of the Office of Management and Budget in the Trump administration. On the previous Friday the first Director of the CFPB announced that he would be resigning and would name English as the Acting Director until President Trump nominated the next official Director and they were approved by the Senate. However, Trump announced that same weekend that English would not be the Acting Director but rather Mulvaney.
This confusion came from conflicting language in two laws. English claimed her authority to be the Acting Director from the Dodd-Frank Act which says that a deputy of the Director can serve as Acting Director until a new Director is nominated and confirmed. Mulvaney claimed his authority to be the Acting Director from a previous, 1998 Federal Vacancies Act, which says that the President has the power to immediately appoint a temporary official into any federal position when a vacancy is pending a nomination and confirmation.
A judge on Monday sided with President Trump, allowing Mulvaney to claim the title of Acting Director of the CFPB, for now at least.
And thatâs a quick background of any number of articles or stories you may have heard about the CFPB last week. Some of the articles didnât mention the Fed at all and otherâs made vague and somewhat misleading like, âthe CFPB which is part of the Federal Reserve Systemâ. So letâs move on to the Short Answer to the real question here, âWhat does the CFPB have to do with the Federal Reserve?â
Short Answer #1The CFPB is funded by the Federal Reserve. The CFPB also took some of the responsibilities that were formally responsibilities of the Fed.
Long Answer #1The Federal Reserve has a very large quantity of assets on its books, about $4.5T worth. A very large portion of those assets are interest bearing. We wonât get into what the assets on the balance sheet are in todayâs Q&A, but suffice it to say that after subtracting all of the expenses that the Fed incurs every year they have about $100B left over. That âextraâ money is given to the Treasury. Since the inception of the CFPB the Fed gives slightly less to the treasury because the budget for the CFPB comes out first.
So as far as the financing of the CFPB goes it is within the Federal Reserve System because it gets its financing from the Fed. However, the Fed doesnât have any authority over the CFPB and thatâs where I think the quote about the CFPB being part of the Fed is misleading. It makes it sound like it might be comparable to the supervision and regulation department of the Fed or the FOMC. Thatâs really not the case.
The only real connection to the Federal Reserve System is the money. The Fed has no âoversightâ of the CFPB.
So hopefully that helped bridge the gap between what the CFPB is and how it is and isnât connected to the Federal Reserve System. On to question #2.
Question #2Who is Marvin Goodfriend?
Background #2The reason Marvin Goodfriendâs name is popping up in the Centralverse is because he was recently nominated by President Trump to be an additional Governor on the Board of Governors in Washington DC. If confirmed by the Senate, Goodfriend would be the 5th Governor. This leaves Trump with two more seats to fill.
Short Answer #2Marvin Goodfriend is an economics professor at Carnegie Mellon University and the former director of research at the Federal Reserve Bank of Richmond.
Long Answer #2According to the Wall Street Journal, âMr. Goodfriend remains popular with conservative economists, including many who have been critical of the Fed in recent years, as well as influential Republican lawmakers.â In a different article the Journal continued, â[Goodfriend] could end up as an enigmatic swing vote on monetary policy in the coming years, one who sides sometimes with the âhawksâ who favor higher interest rates to prevent excessive inflation, and sometimes with the âdovesâ who prefer lower rates to help nudge inflation up to target.â Heâs spoken out in favor of more congressional oversight of the Fed, in opposition to programs like Quantitative Easing, in favor of negative interest rates, and would be open to a monetary policy rule. (WSJPRO newsletters on 11/30/17 and 12/1/17).
Weâll see how quickly congress acts on getting Goodfriend through the confirmation process. But when that happens youâll now have a little bit of background on who he is and where his priorities might lie for his new job at the Central Bank.
ConclusionIf you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Two members of the FOMC gave very similar speeches last week. Their message? In preparation for the next economic downturn, we need to define the âexpansionâ of tools we used during the the Great Recession. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Two members of the FOMC gave very similar speeches last week. Their message? In preparation for the next economic downturn, we need to define the âexpansionâ of tools that a central bank has in order to combat and prevent crisis.
On todayâs short episode Iâll give a brief summary of the ideas shared by Charles Evans, President of the Chicago Federal Reserve, and John Williams, President of the San Francisco Federal Reserve. After the summary of their comments I will outline the policy tools used during the Great Recession by the Federal Reserve.
The ArgumentThe basic argument behind the need to clarify and define the policy tools the Central Bank will use goes something like this: the Fed wonât be able to raise interest rates as high as they were before the crisis. In 2006 the Fed Funds rate peaked at 5.25%. The most recent projections from the Fedâs Dot Plot show most participants believe the long run Fed Funds rate will settle at or around just 3.00%.
Remember that the well established monetary policy tool that central banks use is a direct influence over the short term Fed Funds interest rate. The more dire the economic situation the more the Fed will lower the interest rate. When the next crisis comes, instead of being able to lower the Fed Funds rate from 5.25% to 0.00%. Theyâll only be able to drop it from 3.00% down to 0.00%. Thatâs kind of like only being able to punch the bad guy half as hard as we did before.
At the next financial crisis the Fed will almost certainly lower the Federal Funds rate much quicker and will reach what economists call the Lower Zero Bound much sooner. When this happens the Fed will have to turn to âunconventional policy toolsâ. What Presidents Evans and Williams argued in their speeches last week is that in order to be prepared for the next crisis, the Fed needs to outline, research, and define the policy tools that they will use after hitting the Lower Zero Bound of short term interest rates.
The Policy ToolsSo in the spirit of preparation for the upcoming (hopefully not for many years) financial crisis, letâs review the policy tools that the Federal Reserve has or could use. We start with the ones that they used during the Great Recession and then Iâll describe just a few otherâs that have been proposed by academics within and outside of the Fed.
Lower target range to 0-.25%
Buy bonds (gov debt, other; short, long term; operation twist)
Lending facilities (see new chart here)
Forward guidance
New inflation target (price targeting)
Negative Interest Rates
ConclusionAs always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com. If youâd like to receive the shownotes to every episode the morning every episode is published go to the website and sign up at the bottom of the home page. This week Iâll include a summary list of Policy Tools that Central Banks may use in the next financial crisis. The list will also include a link to the Lending Facilities summary chart that I created for the website.
Before we close out the episode I want to say that Janet Yellen announced this past week that she will be stepping down from the Board of Governors when her term as Chair ends in February. This is a sad loss to the Centralverse. She was the most qualified of any Federal Reserve Chair in its 100 year history and led the institution through one of the most successful economic expansions in the history of this country. On this Thanksgiving Day - weâre grateful for your service Chair Yellen and wish you a delightful and well deserved retirement. I hope your lifeâs memoir is not long in coming!
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Two appointments at the Federal Reserve last week. One Iâm certain you heard about and another one Iâm just as certain you did not hear about. On todayâs episode a quick recap - the new Chair of the Federal Reserve and the new Secretary of the FOMC. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Two appointments were made at the Federal Reserve last week. One Iâm certain you heard about and another one Iâm just as certain you did not hear about. On todayâs episode a quick recap of the new Chair of the Federal Reserve and the new Secretary of the FOMC.
The New ChairmanAs has been reported in most major news outlets, the nomination of Jerome Powell as the next Chair of the Federal Reserve was a safe one. With Powell, Trump could simultaneously, put his name on the top job at the countryâs central bank while still maintaining the successful policies of its current Chair Janet Yellen. Financial markets were little changed the day of the announcement as well as the days leading up to the announcement when it was leaked that Powell would be chosen.
Powell has consistently voted with Yellen since his nomination to the Board of Governors in 2012 by President Obama. He is a Republican with a legal background working in investment banks, the George H W Bush Treasury, and for the 15 years leading up to his appointment to the Board of Governors at private equity funds (including 8 years at the Carlyle Group - the same company where Randal Quarles, the newly appointed Governor). It is widely viewed that Powell will carry on the current policy path.
The next big question is will Yellen leave the Board of Governors completely in February when she is no longer the Chair? Remember that the Chair of the Federal Reserve, a renewable 4 year position, is also a Governor, a 14 year position. So if the term of a Chair ends and the person still has time remaining in their 14 year Governor position, they have the option to stay on the Board. In Yellenâs case her term as Chair will end in February 2018; however, she could stay on as a Governor until her 14 year term ends in 2024.
Now before we move onto the second new appointment at the Federal Reserve from this week I do want to recommend two fascinating articles by Peter Conti-Brown, a professor at Wharton. For long time listeners this name will sound familiar. Conti-Brown is the author of the excellent book, The Power and Independence of the Federal Reserve. Anyways, in the first recommended article Conti-Brown describes the process that President Trump, the former Reality TV Star, took in choosing Jerome Powell as Fed Chair. In it he outlines, âwhat we won and what we lost in the Trumpian Procedures and the Trumpian Outcomes.â
In a second article, in the same Notice and Comment blog from the Yale Journal on Regulation, Conti-Brown outlines a brief, 60-year history of Fed Chair turnover. Itâs a fascinating read and an open letter to Janet Yellen asking her to stay on as a Governor.
And now onto the second, far-less reported change to the Federal Reserve this week.
The New SecretaryJames A Clouse was named the new Secretary of the Federal Open Market Committee (the FOMC, the committee that votes on interest rate moves and other major monetary policy decisions). Although clearly not as flashy or as powerful a position as Chair, the role of FOMC Secretary is surprisingly important.
Along with his role directing the office of the FOMC Secretariat, Clouse will have many responsibilities when he assumes the new job on November 26th. The Secretary is responsible for the minutes and transcripts of all FOMC meetings. These documents become the official record of the Federal Reserve and they literally move markets.
I remember in college, when I was first introduced to the Bloomberg Terminal, an investing and news platform that takes the shape of a multi-screen computer that costs tens of thousands of dollars a year. Anyways, one of the first features I was shown by my Money and Banking professor was a tool used to analyze the most recent Federal Reserve announcements, transcripts, and meeting minutes. I was amazed at the detail of this tool. You could dive into potential market effects of the document. Bloombergâs algorithms would bring up recent documents and highlight similarities and differences. This was also during the early days of my introduction to Central Banking and I was dumbstruck by the amount of time and energy that people paid to Central Banks. It sounded like an institution worth looking a bit more into. Itâd be fun to sit down next to that younger version of myself and say, âin a few years youâll be so into the world behind these documents and the institutions that wrote them that youâll spend dozens of hours a week making a podcast about them, for free, on your spare time.â
Ok, closing the door on memory lane and bringing us back to the present. The point of the Bloomberg Terminal experience was simply to emphasize that the documents that central bankers create and publish are incredibly important, and thatâs relevant today because in a few weeks a new man will be given the responsibility for the format and construction of said documents.
Iâll conclude my comments about the Secretary of the FOMC by referencing a fun speech given by Governor Laurence Meyer entitled, âCome With Me to the FOMCâ. The fun rhyming title is a hint to the light, easy to read spirit of this speech. The name Meyer will sound familiar to listeners who paid attention to the episode, âThe Disclaimerâ where we dived into the story behind all Fed officials including the following disclaimer at the beginning of all of their speeches, âMy comments are my own and donât reflect those of the System or my colleagues on the FOMC.â Meyerâs book, which I sourced for the disclaimer episode, was a result of this speech. Meyer got such a large quantity of feedback about his talk, âCome With Me to the FOMCâ that he decided to expand upon it and into a book.
In the speech Meyer goes into great detail about how the FOMC meetings actually work, and a central figure in these meetings is the secretary.
Meyer says that the secretary always sat next to the Chairman, Alan Greenspan at the time. He was responsible for preparing and taking notes of the meetings, translating those notes into meeting minutes, and then approving the final published minutes. When it came time to vote on the interest rate decision, the secretary would read the directive upon which the committee would be voting on that day. The secretary would also provide input into the sticky word choice debates that arise when writing central banking documents. He would offer commentary around the differences between the words like âslight, somewhat, or moderateâ. Finally the secretary would take and tally the official vote.
So over the next few weeks and months the Federal Reserve will see a change in leadership. Jerome Powell will be taking the helm of the nationâs central bank, and he will have James Clouse by his side taking, preparing, and delivering the notes.
ConclusionAs always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com. If youâd like to receive the shownotes to every episode the morning every episode is published go to the website and sign up at the bottom of the home page. This week Iâll include direct links to Professor Conti-Brownâs two excellent pieces as well as the famous, âCome With Me to the FOMCâ speech from Governor Meyer.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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As the announcement of the next Chair of the Federal Reserve System is scheduled to be announced by President Trump before the release of the next episode, I wanted to share the story behind Marriner Ecclesâs appointment back in 1934.
IntroductionThis is Alexander Bagehot, and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
This is the fourth part of The Bankster Podcastâs ongoing research into the life and work of Marriner Stoddard Eccles. The timing of the release of this episode could not be more perfect. The current President of the United States is in the final days of deliberation before he announces the next Chairperson of the Federal Reserve System. Itâs looking like Janet Yellen, Jay Powell, and John Taylor are the current front runners. The President has promised that he will announce his decision before he leaves for Asia on November 3rd (next Friday). It seemed appropriate to share with you today Ecclesâs nomination experience. Itâs a dramatic story with some aspects that are unimaginable today and others that could have been headline news articles of the last few weeks. So with that, letâs jump right in.
Ecclesâs NominationEugene Black had a short tenure as leader of the Board of Governors. He had served just 15 months from May of 1933 to August of 1934, when he decided that he would rather go back to his old position as head of the Federal Reserve Bank of Atlanta. Under todayâs system, this move would be a major step down in power and authority. However, things were different back then. And the changes from an environment where a Fed Chair would leave his position in favor of a local Reserve Bank President position came in large part to one man, obviously, Marriner Eccles. Eccles himself tells the story really well, so Iâm going to be taking a lot of quotes from his Autobiography, Beckoning Frontiers. Eccles picks up the story right from there.
âIn the months following Blackâs resignation several names were bandied about Washington as those of likely successors to the post he had vacated. But it was not until a blistering day in August that I heard my own name included among the list of prospects. On this day, when I was seated next to Henry Morgenthau at a White House conference, he suddenly leaned over and whispered: âMarriner, Iâve been talking to the President about your filling Eugene Blackâs place.â
Here is Ecclesâs response,
â[Morgenthau] waited for a reply. For once in my life I was mum. Nothing more was said, nor were any questions asked when the meeting ended. Iâd never thought of myself as a candidate for the vacant post or for any other public post. June 1935 had been set as the limit of my stay in Washington, the date coinciding with the end of the school term. I meant to return to Utah with my family at that time.â
A month went by before the President himself brought up the subject with Eccles directly. Remember that at the time Eccles was serving in the Roosevelt administration as Assistant Treasury Secretary. Eccles continues.
âSometime in September, when Morgenthau took me to another White House meeting, Roosevelt informed me directly that I was being considered for the post of Governor of the Federal Reserve Board and asked how I felt about that prospect. I replied that the post would be an appealing one only if fundamental changes were made in the Federal Reserve System.â
In his autobiography Eccles detailed a few of the problems with the way the Federal Reserve had evolved from the 1913 vision of the nationâs central bank to the present 1934 situation.
âOver the years, practices had grown up inside the System which had reduced the Reserve Board in Washington to impotence. The System had originally been designed to represent a blend of private and public interests and of decentralized and centralized authorities, but this arrangement had become unbalanced. Private interests, acting through the Reserve banks, had made the System an effective instrument by which private interests alone could be served. The Board in Washington, on the other hand, which was supposed to represent and safeguard the public interest, was powerless to do so under the existing law and in the face of the opposition offered by the men who ran the Reserve banks throughout the country.â
The President gave Eccles a few months to go to the drawing board and write up his critiques of the Federal Reserve System as he saw them and to offer specific recommended changes. Now listen to what Eccles says about the document, the memorandum he calls it, that he prepares in response to the Presidentâs request for specific changes. Thereâs a line in this next quote that I could have pulled from any number of shade throwing comments of the 2017 political atmosphere.
âThis memorandum, which led to the Banking Act of 1935, is now deposited among the Roosevelt papers. It should have more than passing interest to the historians of the epoch. While Roosevelt beforehand had engaged in the very agreeable political game of attacking âWall Street controlâ of the American economy, the attack was largely theatrical in character. It had never been followed by off-stage action of the sort that could make the nationâs financial centers useful servants of the national welfare. The memorandum I presented to Roosevelt on November 4 proposed in explicit terms that this sort of action should be taken, and indicated, furthermore, how it should be taken.â
Iâm proud to say that after some diligent research I was able to find the very Memo, with an inscription at the top of the page, âMemo Given to President 11/3/34â [November 3, 1934]. The title of the Memo is, âDesirable Changes in the Administration of the Federal Reserveâ. Iâll send a link to the PDF of a scan of the original Memo in the show notes to todayâs episode. To those of you who havenât yet signed up for the show notes, itâs super simple. Go to www.thebanksterpodcast.com, scroll to the bottom of the page and type in your email, itâs as simple as that. I send one short email with bonus content at the same time the episode is released.
Considering the sweeping nature and impact of this Memo, its layout is quite simple and concise. It consists of eight bullet points and doesnât reach the two and a half page mark. Here is a quick summary of the eight recommendations that, as Eccles said, âshould be takenâ by which he implied, âshould be taken if you want me to be the next Fed Chair.â
The first three touch on the Fedâs power to control the supply of money
The fourth recommends the monetary policy decision making authority be shifted from the Reserve Banks, especially the FRBNY, to the Board of Governors. The fourth also asks that the head of the Reserve Banks be appointed annually - subject to Board of Governors approval.
The fifth is mostly a complaint about the status of the Board. Itâs worth quoting, âAlthough the Board is nominally the supreme monetary authority in this country it is generally conceded that in the past it has not played an effective role, and that the system has been generally dominated by the Governors of the Federal Reserve Banks; As a consequence, the Board has not commanded the respect and prestige to which its position would apparently entitle it, nor has membership on the Board been as highly desired as it should be to attract the necessary talent. The great disparity in salaries has also contributed to this conditionâ
The sixth is also too juicy not to quote. In this one he really lays into what he sees as the ludicrous current amount of power held by the Reserve Banks. âThere is no reason to suppose that this administrative organisation which functioned so badly in the past, will function any better in the future. The diffusion of power and responsibility, the root cause of the trouble, remains. Over one hundred individuals are responsible, in various degrees, for the formulation of policy. Obviously the more people there are who share the responsibility, the less keenly any one of them will feel any personal responsibility for the policies adopted. It is therefore almost inevitable that such a loosely knit and cumbersome body as the Federal Reserve Administration should be characterized by inertia and indecisive action generally. Moreover, a complete stalemate resulting from a disagreement of the reserve banks and the Board is always possible. To correct this condition reform must be in the direction of concentrating authority and responsibility for control into the hands of a small policy formulating body [namely the Board of Governors]â.
The seventh takes the idea from number four about the Board of Governors involvement in approving the appointment of the leaders of the Reserve Banks one step further, âGovernors were conferred on the Board, the possibility of lack of cooperation and friction would be obviated in the future, while the prestige of the Board would be enhanced.â
Finally, his eighth and final statement is one of self confidence and almost pride at his own recommended changes. âThe adoption of these suggestions would introduce certain attributes of a real central bank capable of energetic and positive action without calling for a drastic revision of the whole Federal Reserve Act. Private ownership and local autonomy are preserved, but on really important questions of policy authority and responsibility are concentrated in the Board. Thus, effective control is obtained, while the intense opposition and criticism that greets every central bank proposal is largely avoided.â
What a Memo! Eccles delivers the written Memo and then spends over 2 hours answering the Presidentâs questions and expanding on his ideas. Then, âAt last [Rooseveltâs] powerful hands slapped down on the table in his characteristic gesture of decision as he said: âMarriner, thatâs quite an action program you want. It will be a knock-down and drag-out fight to get it through. But we might as well undertake it now as at any other time. It seems to be necessary. Then he added: âGossip has gotten around about my considering appointing you the new Governor. It is only fair that you should know that formidable opposition has developed as a result. However, I donât give a damn. That opposition is coming from the boys whom I am not following.â
To this I replied: âWell, Mr. President, if you donât give a damn, I donât see why I should.â
âSix days later, on November 10, [Roosevelt] announced [Ecclesâs] appointment as [Chairman] of the Federal Reserve.â
The recess appointment and the following brutal nomination process is a story for another episode, but it too has a lot of parallels to todayâs political climate. The process of turning the Memo into actual legislation was also incredibly challenging. And the pushback Eccles received from the leaders of the Reserve Banks was naturally fierce and taxing. Those stories will be shared in future episodes of The Bankster Podcast. But for now, I hope you enjoyed learning about the incredible story of Ecclesâs nomination to the head of the Federal Reserve.
You can bet that although the Federal Reserve always changes when a new person takes the lead, 2018âs almost certainly will not be as dramatic a transition as the one in 1935.
ConclusionTodayâs episode was written, edited, and produced by me, Alexander Bagehot. Reach out with your feedback, comments, and questions on twitter or via my website www.thebanksterpodcast.com. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Another set of great questions on todayâs round of Centralverse Q&A: Who is in the running for Chair of the Federal Reserve? And, briefly, what does the Federal Reserve Chair do? If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
When the idea for the Centralverse Q&A segment came to mind I thought I would use it occasionally when an especially interesting question arose, or I found a fun bit of information that might not fit in a longer, story like format. However, as evidenced by the title of todayâs episode, Iâm now on the third episode of Centralverse Q&A. It has turned out to be an excellent format to share insights into the workings of the Fed and why they matter today.
But before we jump into the two questions for Round III I do want to reiterate a recommendation that I first gave clear back in Episode 4 of Season 1 of The Bankster Podcast. For long time listeners that was the episode where I described the gold held by the Federal Reserve. I wonât repeat the story of the Fedâs gold reserve here, you should go back and listen to episode 4 again to get the whole story; however, I actually had a chance last week to visit the gold vaults in the subbasement of the New York Federal Reserve, deep in the bedrock of Manhattan. It was a phenomenal trip for my wife and me, and to see the piles and piles of bright gold bars, stacked behind turquoise colored metal bars was something I will never forget.
And one more PSA while Iâm on the topic of Federal Reserve Building visits and tours, the Chicago Architecture Foundation does an open house weekend in the Windy City every October. Hundreds of skyscrapers, antique mansions, houses of worship, and other interesting buildings normally closed to the public are opened for just one weekend. In the city that gave birth to modern architecture itâs a great reason to come to the city, period. But on top of that the Federal Reserve Bank of Chicago is one of the buildings that opens its doors. You have to go through enough checkpoints and scanners you feel like youâre at the airport, but if you donât mind a pass through the heightened security, you can see the beautiful Great Hall of the oldest building still in use by the Federal Reserve in the whole country.
Ok, enough announcements. Letâs dive into some Centralverse Q&Aâs.
Question #1Who is in the running for Chair of the Federal Reserve?
Background #1On Friday, September 29, Trump told reporters that, âIâve had four meetings for Fed Chairman, and Iâll be making a decision over the next two or three weeks.â Well, the release of this podcast is Friday, October 13, (also my parents anniversary - happy 29 years mom and dad - may you celebrate two more sets of 29!). Anyways, today is exactly two weeks from Trumpâs statement, and although it doesnât look like weâre within days of the announcement (Trump rarely actually delivers on his âthis will happen in two weeksâ) there are talks and statements about who is in the running and the nomination will have to come pretty soon because the new chair will begin his or her four year term in February 2018. So with that Iâll give a short and long answer to the question, âWho are these potential Fed Chair candidates?â
Short Answer #1Janet Yellen, current Chair (she could be reappointed for another 4 year term)
Jerome Powell, one of the current Governors
Kevin Warsh, former Governor
Gary Cohn, current Economic Council director
John Taylor, current Stanford Economics Professor (heâs the one who wrote the famous mathematical formula for monetary policy)
Long Answer #1For this questionâs Long Answer Iâm actually going to refer everyone to the show notes where I have a link to an excellent article that provides the perfect long answer to this question. Large news organizations and universities, most notably the WSJ, Bloomberg, and the University of Chicago, occasionally conduct surveys of economistsâ viewpoints on current political and economic events. Bloomberg has done four surveys asking the same group of economists who they believe Trump will choose as the Chair of the Federal Reserve (not who they think should be the Federal Reserve Chair but rather who they think Trump will actually nominate). The article has excellent, two paragraph summaries of the life and work of each of the candidates. They also have a fun graphic that shows how the economistâs views have changed over the last five months. You can see who has increased in likelihood and who has dropped off and below the infographic you can read a relatively brief bio of each one.
As I mentioned, to get a nice, concise summary of each episode, including links to all of the great resources that I use creating each episode, head over to my website, www.thebanksterpodcast.com and sign up for the show notes. I only send one email per episode and itâs sent at the same time the podcast is released. Itâs a great way to take one step farther into the Centralverse.
Question #2So now that I have given you a brief introduction to the current candidates, it begs the question, âWhat does the Chair of the Federal Reserve do?â
Short Answer #2Leads the Monetary Policy efforts of the countryâs central bank.
Reports to both the Senate and House of Congress twice a year.
Meets with the Treasury Secretary on a regular basis.
Sits on intergovernmental councils that coordinate regulatory and supervisory efforts.
Serves as figurehead of the employees of the Federal Reserve System, which include the 12 Reserve Banks and the Board of Governors.
Works with leaders of foreign central banks during times of panic.
Long Answer #2One of the governors.
Four year term.
Reappointed as many times within 14 year term (plus any extra time from position being filled).
FSOC (Financial Stability Oversight Council, define sifiâs)
FFIEC (Federal Financial Institutions Examination Council, collection of financial data)
Meet with Treasury Secretary regularly. The chairs complete calendar is actually publicly available and in a phenomenal infographic produced by the Wall Street Journalâs Central Banking Pro team. Using a Freedom of Information Act request the Journal gets access to the Chairâs entire schedule. Itâs fun to scroll through and see how the most powerful woman in the world does in a typical day.
Figurehead (like a monarch) of twelve districts 12,000 employees. In fact itâs one of the other governors that chairs the âCommittee on Bank Affairsâ.
Work with international central bankers (Alchemists book with Ben Bernanke, Jean-Claude Trichet, Mervyn King)
Runs the FOMC (sets the agenda, decides what the vote is on, gets the final say, tries to gather consensus, lowest interest rate, other tools: QE, emergency lending, swap lines, balance sheet)
And that concludes the third round of Centralverse Q&A. Whether Trump announces his pick for the next Chair this afternoon, next week or in months to come, you will now be familiar with the name and a tiny bit of background info about the chosen nominee. Then, when that nominee (assuming they are confirmed by the Senate) begins his or her term in February of next year, youâll know a little more about their what a few of their responsibilities will be!
ConclusionIf you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Two great questions on todayâs round of Centralverse Q&A: What are the requirements for becoming a Fed governor? How will the Fedâs balance sheet change? If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
These are exciting times here in the Centralverse. Just about every week there is a new announcement or rumored announcement about a change in leadership or a change in monetary policy action. This week was no exception and Iâm going to be discussing two questions on todayâs episode. Now for those of you that caught the first episode in the Centralverse Q&A series youâll remember that we approach each question in three phases: a bit background information about why itâs interesting this week, the short answer, and finally the long answer. So now that weâre all on the same page letâs dive into Centralverse Q&A, Round II.
Question #1What are the requirements for becoming a Fed governor?
Background #1Last week, the Wall Street Journal reported that Randal Quarles is claiming Colorado as his home. He lives in Utah and the private investment fund he runs is based in Utah. However, and now quoting from the article, â[Quarles] lived in Colorado from the age of 7 months through second grade...After that, [Quarles] returned to Colorado for a material portion of every summer to stay with his grandparentsâŠ[oh, and he also spends many a Christmas in Colorado, his spokesman added].â So why on earth would the prospective future Federal Reserve Governor make such gymnastic like positioning to claim Colorado? Well, because he has to.
Short Answer #1The Federal Reserve Act specifies that no two members of the Board of Governors can come from the same Federal Reserve District and that they should represent different sectors of the economy. Utah is in the 12th District, which already has a Governor - Janet Yellen, who claims San Francisco. The 10th District, of which Colorado is a part, does not currently have a Governor. Lucky for Quarles thatâs where he went to 1st grade.
Long Answer #1The Federal Reserve Act lists just two prerequisites for the position of Governor. To quote from Section 10 of the Act itself, âIn selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.â So, as a whole, the 7 governors need to represent (a) different sectors of the economy and (b) different geographical locations of the country. That specific call out for the geographical representation is very specific. And thatâs why Quarles has had to do such gymnastics to claim Colorado as the answer to the otherwise simple question, âWhere are you from?â
Iâll send a link of the Wall Street Journal article in the show notes of this episode. Which by the way I havenât sent out for the past few episodes. My apologies! Going forward, instead of receiving the show notes a few days later - I will be sending them out on the same morning that I release the podcast. You can sign up to receive the show notes directly in your email inbox by going to my website www.thebanksterpodcast.com. Anyways, the article tells some fun stories about how some current and past governors have claimed their answers to the question, âWhere are you from?â The article also hints at the story of the initial amendment that was written into the 1913 Act that added the line about no two governors from the same area.
To end this long answer I will say just one more thing about the prerequisites of becoming a Governor. The Federal Reserve Act specifies that, like many other high ranking governmental positions, the US President will nominate the individual and the Senate will confirm him or her.
Question #2How will the Fedâs balance sheet change?
Background #2During the Financial Crisis of 2007-2009 the Fed, in an effort to encourage growth back into the economy, dramatically increased the size of the balance sheet from under $1T to $4.5T. At the June FOMC meeting of this year, the Fed announced that âsoonâ they would begin decreasing the size of that balance sheet. At the September FOMC meeting, held just last week, they announced that the âsoonâ would be October. So how will they do this? I have a short and a long answer for you.
The only other piece of background information you need to know before I share those answers with you is what the balance sheet is made of. The majority of the $4.5T are either Government bonds or Mortgage Backed Securities. Both of these assets receive payments every month. They are basically loans. Loans from the government and loans from home owners. Owning $4.5T worth of these loans means that some of them end every month (like when you finish paying off your mortgage and no longer have to send the bank money every month). In order to maintain the $4.5T the Fed has to replace the ones that are paid off. They do this to the tune of billions and billions of dollars every month - replacing the old ones with new ones. Ok, now weâre ready for the answers to the question, âHow will the Fed decrease the balance sheet?â
Short Answer #1The Fed will decrease the size of the balance sheet by slowly not replacing all of the loans that are paid off. Every few months theyâll let a bigger portion of the loans go unreplaced. Important to note that they wonât actively sell off the loans. Just let them expire. Now onto the fun, wonky details.
Long Answer #1The actual portion and speed of the decrease in the size of the balance sheet is actually different for the two types of loans that I mentioned in the background section a minute ago. For the government debt, known as Treasury securities, the Fed will allow $6B to roll off from the balance sheet for the first three months. Then theyâll allow an additional $6B (for a total of $12B) to roll off for the following three months. This pattern of $6B increase every quarter will continue for one year where it will hit $30B. At that point $30B worth of Treasury Securities will be paid off every month without being replaced.
Do you remember what the other type of debt the Fed holds was? Yep, Mortgage Backed Securities. So with these the Fed plans to be a little bit more cautious and move at a slower pace - $4B will roll off for each of the first three months. Then $8B for the following three months, etc. etc.. until the 12th month when the steady state will be $20B. When will this end you might be asking yourself? Well, the Fedâs official statement in wonderful Centralversease worthy only of the Long Answer section says, âThe Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.â In other words, to use a phrase loved by Central Bankers, âWeâll seeâ.
ConclusionAnd that concludes the second round of Centralverse Q&A. If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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Arguably one of the most important people at the Federal Reserve is someone that is rarely seen. Who is the General Counsel and what does he do? On todayâs episode! As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Today was going to be another round of Centralverse Q&A, but I got so caught up on the first question that the episode no longer fit the model of the âshort answer, background info, and long answerâ format that Iâve designed the Centralverse Q&A episodes to have. The question involves one of the most important people at the Federal Reserve. Now, unlike my title suggests, the person actually is not a governor, and he is definitely not the 8th governor. Remember - there are only 7 governor positions at the Board of Governors in Washington DC. However, the position wields such power at the US Central Bank that the position is often deemed the 8th governor. Who is this powerful person and what is his position? The subject of todayâs episode is Mark E Van Der Weide, General Counsel of the Federal Reserve. Van Der Weide was appointed as General Counsel just two months ago (link), so before I introduce you to what we know about him Iâm going to describe the position of General Counsel of the Federal Reserve and use a few examples from the tenure of Van Der Weideâs predecessor, Scott Alvarez, to illustrate the job.
PositionFor those of you unfamiliar with the term, General Counsel, (as I was not long ago before joining the corporate world), it is an internal position that normally means three things: (1) the highest ranking lawyer (2) head of the legal department, (3) gives advice to the management of the company concerning legal matters that affect the company. Or as google nicely summarizes, âthe main lawyer who gives legal advice to a company.â All major companies have general counsel. The General Counsel is involved in almost every aspect of what a company does. Making sure that the products or services will pass regulations. Advising management on city, county, state, national, and even international laws that govern the companyâs industry. They are involved in everything from the contracts and benefits of employees to the nitty gritty details of company expansions and mergers and acquisitions. Itâs an important job in any company, and the Federal Reserve is no exception.
But as you know the Federal Reserve isnât just any company. Itâs the biggest player in what I describe at the beginning of every episode as, âthe fascinating and ever more consequential world of central bankingâ. Here are two examples of what Scott Alvarez, the General Counsel of the Federal Reserve from 2004 to just a few months ago, did during his 13 year tenure.
Example number one - Bailouts. Do these names sound familiar: Fannie Mae, Freddie Mac, Bear Stearns, BNP Paribas, Morgan Stanley, Lehman Brothers, AIG? These are all financial institutions that were very troubled at one point or another during the Financial Crisis of 07-09. The Federal Reserve has an implicit job to protect the economy from panics like this one and prevent the panics that do occur from morphing into economy and life destroying depressions. One way the Federal Reserve does this is through the discount window and through other emergency lending facilities. But who can the Federal Reserve lend to? For how long can the loans be offered?
The Federal Reserve was created by an act of congress. That 1913 Act and the handful of amendments that have passed since then dictate the answers to some of these questions. However, the law is often vague and gives incredible discretion to the Federal Reserve. During the Financial Crisis, some of the institutions I named just a second ago received significant help from the Federal Reserve, others did not. Ultimately, the most important voice in the debate about who could receive Federal Reserve money, who could not, how long and at what terms they could receive the money, was the voice of Scott Alvarez, the General Counsel. It was his job to interpret the Federal Reserve Act. He suggested that the Fed had the authority to facilitate the rescue of Bear Stearns by JPMorgan Chase. But when a last minute deal for the British Bank Barclays to purchase the collapsing Lehman Brothers Investment Bank fell through, Alvarez said that that was the end of the rope for the Fed. They could go no further and had to let Lehman Brothers fail. Not long after the bankruptcy of Lehman Brothers Alvarez signed off on an emergency loan to AIG (a large insurance company).
Itâs important to remember the two things I mentioned about the laws governing what the Federal Reserve can and cannot do: (1) the law is often and vague and (2) it gives incredible discretion to the Fed in interpreting the law. So when Ben Bernanke, Chairman of the Federal Reserve at the time of the crisis, was trying to keep the economy from completely collapsing, he had to rely on Alvarezâs interpretations and judgements about what was within his power and what was without.
Thatâs the first and an extreme example of the roll that the General Counsel plays at the Federal Reserve. Onto the second example - Legislation.
One of President Obamaâs key legislative victories during his time as president was the Dodd-Frank Financial Reform Act. The Federal Reserve is a critical player in the financial system, so it had a lot of input to add to the debate about how the system should be changed and adapted to fit the post-crisis world. Alvarez and the legal team at the Federal Reserve were involved in two major ways with this law. The first was during the drafting of the law itself. Congress and the Treasury Department brought in Federal Reserve attorneys and Federal Reserve bank examiners to provide their input and perspective into what happened and what could be changed to prevent a similar collapse in the economy in the future. So the Fed lawyers were helping with the writing of the legislation. The second came after the act was passed.
As with many laws that congress passes, the Dodd-Frank Act did not spell out every new rule and regulation. Often it just said something to the effect of, âthere will be a rule about how much capital a bank must holdâ. These types of statements normally have some kind of footnote that says, âthe specific rule will be written by the Federal Reserveâ. Thatâs when the Federal Reserve lawyers and the respective internal knowledge experts get together and write out the specifics of each rule that congress assigned to the Fed to not only enforce but also to write.
So the power to (1) interpret when and how the Federal Reserve can use their money creating powers and (2) write the rules that govern the financial industry are in the hands of the General Counsel. That kind of power is why the position is so important.
Now before I share with you a few facts about the new General Counsel of the Fed, I need to point out one more important characteristic of the position - it is not a political appointment. The man or woman that holds the two powers weâve talked about today is chosen by senior leadership of the Fed. The framers of the Federal Reserve System designed it like that as an additional buffer to keep the countryâs central bank as apolitical as possible. A great debate can be had over whether this is right or wrong. Peter Conti-Brown, a Professor at Wharton wrote an excellent article in the WSJ about the position of Fed General Counsel and why it should be a politically appointed position (link). I highly recommend it and his book, The Power and Independence of the Federal Reserve, which goes into much greater detail about the General Counsel and other important yet little understood facets of the Federal Reserve.
Letâs now turn our attention to the newly appointed General Counsel.
Mark E Van Der WeideMark E Van Der Weide began his career at the Fed in 1998. He graduated from the University of Iowa with a degree in History and Philosophy and received his JD from Yale, graduating in 1995. He spent a few years with a law firm in DC before taking a position in the Federal Reserveâs legal department where he worked for the next ten years. From 2009-2010 he was assigned to work at the US Treasury in crafting the Dodd-Frank Act which we mentioned earlier in the episode. Then from 2010 up until a few months ago, Van Der Weide served as the Deputy Director in the division of Supervision and Regulation.
Whenever the Fed is in the news youâll hear the press clamoring for an interview with Janet Yellen, the current Chairwoman; Bill Dudley, President of the NY Fed; or any of the other Governors or Presidents. However, you can guarantee that in the background the General Counsel has been working hard and had a large influence on the decision that is garnering the news or at least the wording and framing of it.
ConclusionTodayâs episode was written, edited, and produced by me, Alexander Bagehot. Reach out with your feedback, comments, and questions on twitter or via my website www.thebanksterpodcast.com. Leave a rating and share the podcast with your coworkers and classmates. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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The first episode in a new series Iâm calling, âCentralverse Q&Aâ. If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
IntroductionI am Alexander Bagehot and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Todayâs episode is Part I of a new series that I expect to drop into the feed occasionally called, âCentralverse Q&Aâ. Iâll take questions from multiple spots on the complexity spectrum and answer them here on the podcast. For every question Iâll start by briefly sharing any background information that might be required to understand the question, then Iâll give a short answer, and then a longer explanation. I hope this will be a fun way to learn about some of the more nuanced roles and responsibilities of the Federal Reserve and other central banks the world over.
On this first round Iâm going to answer two questions Iâve heard over the last few weeks. These were really fun to research because I actually did not know the answer to either question when I was initially asked. Thereâs still plenty for me to learn. And I want to share that with all of you! So on to the questions.
Question #1Does or could the Federal Reserve use fines they levy on banks to cover operating costs?
Background #1The Fed collects lots of money every year. Most of the money comes from interest that the Fed earns on the debt that they own. In this way the Fed is kind of like a traditional bank. The debt that your bank owns includes your home mortgage. So you pay your bank every month. Similarly the Fed owns lots of debt and therefore receives lots of payments every month. The two main categories of debt that they own are (1) Government debt, so uncle Sam is paying the Federal Reserve interest every month and (2) Mortgage Backed Securities, which is basically a bundle of mortgages.
Another, much smaller way, in which the Fed collects money is through charging for services. Some of these services include processing checks and clearing large dollar money transfers. The banks that use these services have to pay to use them.
Every week the Federal Reserve takes all of the money that they have collected, they subtract how much it cost to run the Fed, and then they give the rest to the US Treasury. This transfer of money from the Fed to the Treasury is called a remittance. Last year the Fed remitted $92 Billion.
Now, thereâs one other way the Fed collects money that I didnât describe but was mentioned in the question, fines. The Fed levies hundreds of millions of dollars of fines on banking institutions every year. Does that money go through the same process? Could it be argued that the Federal Reserve uses the money they collect on fines to cover their operating expenses?
Short Answer #1No, the money goes straight to the Treasury.
Long Answer #1The Federal Reserve Bank of Richmond serves as the accounting agent of the US Treasury, which basically means the checking account of the US Treasury is on the Richmond Fedâs accounting books. So the fine is issued by the Board of Governors, the bank pays the US Treasury which is deposited at the Federal Reserve Bank of Richmond. The fines are listed on the books as âother liabilitiesâ and not as âremittancesâ. So that means the fines are not and could not be used to cover operating expenses of running the Federal Reserve.
Question #2What is the process for changing the Chair of the Federal Reserve?
BackgroundJanet Yellen, the current chairwoman of the Federal Reserve, finishes her term this coming February. As is the case with all high profile political appointments, the decision of whether President Trump will renominate her or choose someone else has garnered a lot of public attention in the last few months and the discussions and rumors will only heat up as the end of the year approaches.
Short AnswerEvery 4 years the President of the United States nominates and the Senate confirms one of the seven Governors of the Federal Reserve to serve as Chair.
Long AnswerThe four year term of the Federal Reserve Chair is set on the even years when there is not a US presidential election. So elections in 2016, new term for the Chair in 2018, presidential elections in 2020, new term for the Chair in 2022, and so on. The Federal Reserve System was designed this way so that a new president couldnât come in and immediately change the leader of the central bank. Itâs one more example of the structural defenses that are built into the Fed to keep it independent from short term political actions.
Historically, the Fed Chair has been reappointed by a new president even when the president is of a different political party. Ben Bernanke was appointed first by George W Bush and then reappointed by Barack Obama. Alan Greenspan was appointed by Ronald Reagan and then reappointed by both Bill Clinton and George W Bush. Paul Volcker was appointed by Jimmy Carter and reappointed by Ronald Reagan. So if President Trump does not reappoint Janet Yellen it will be a first in a very long time.
But the story wouldnât be over if President Trump decided to remove Janet Yellen as Chair. See, the President only has the power to remove her from her position as Chair. He cannot remove her completely from the Board of Governors, so even if she was removed, she could still stay on as a Governor. Only one time has a Federal Reserve Chair stayed on after being removed as Chair and that was Marriner Eccles back in the late 1940âs. If you remember from Episode 7, Eccles stayed on as a governor, to ensure that the Federal Reserve completed its push for true independence from the Executive Branch of the Federal Government.
Currently there are still two Governor positions on the Board of Governors that sit vacant. So even if President Trump removed Janet Yellen and she decided to stay on as a Governor, he could still appoint a new person of his choosing to one of the two vacant positions, and then make that person the Chair. This new person would only have to go through one appointment and nomination process, both the Governor and Chair position at the same time.
It will be very interesting to watch what happens with the Chair position over the next six months. But in summary, the President will nominate someone to be the Chair (either Janet Yellen, one of the other Governors, or a new person), the Senate will have to confirm the person, and then they will take up the position as Chair of the Federal Reserve for the next four years.
And that concludes the first round of Centralverse Q&A. If you have questions youâd like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
ConclusionTodayâs episode was written, edited, and produced by me, Alexander Bagehot. Reach out with your feedback, comments, and questions on twitter or via my website www.thebanksterpodcast.com. Leave a rating and share the podcast with your coworkers and classmates. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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A fun look at four short experiences from the childhood of Marriner Eccles.
IntroductionThis is Alexander Bagehot, and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
This is the third part of The Bankster Podcastâs ongoing research into the life and work of Marriner Stoddard Eccles. So without delay, letâs dive in! On todayâs episode Iâm going to read a few fun experiences from Ecclesâs childhood. Some of which come from Ecclesâs own autobiography and others come from the biography of Eccles written by Sidney Hyman. There are four stories told from the ages of 6, 8, 12, and 14. Eccles was born into a very large yet very affluent family. However, he was taught to work hard at a young age. Lots of the stories Eccles tells of himself and the stories others tell of his childhood revolve around work. But in many aspects he was a regular kid, indistinguishable from other kids in his time and ours. I hope you enjoy these short anecdotes of The Child Marriner Eccles.
The Nickname - BiographyâIn 1896, at the age of six, Marriner was enrolled in a school in Baker City. In that same year he acquired a nickname, âNickel-face,â a byproduct of mis-pronouncing the word âfirst.â On a summertime visit to his grandmother in Logan, his uncle Robert Anderson saw the child holding a beautiful apple, and offered to buy it for a nickel. Young Marriner was cautious. âYou give me the nickel face,â said he to his uncle. The exchange between the two went the rounds of the family, and the nickname bom of it stuck.â
When I became a capitalist - AutobiographyâIt was in Logan that I learned how to walk and talk. This mastered, at the stout age of three I was moved back to Oregon, where a new home was in readiness for my mother at Baker City. Five years later I began my education in the lumber business.
Though my father was a millionaire by then, he felt the age of eight was a suitable one for his children to go to work. He wanted none of us to grow up in idleness or acquire a taste for easy living. Though his plan in this respect was fulfilled only in part by his twenty-one children, in my own case there was my mother to oversee its execution. She, too, agreed that time spent in idleness was not good for a boy. And so, in that summer when I was eight, I was sent to the box factory that was part of the Oregon Lumber Company and was told to carry my weight in boxes. The rate of pay was five cents an hour for ten hoursâ work.
When I held in my hands the first fifty cents for a dayâs labor, my father offered a plan whereby I could be taught to follow in his footsteps and become a capitalist by curtailing the consumption of my current income. At the outset of that first summer he said that if I saved my money until I had one hundred dollars, he would sell me one share of Oregon Lumber Company stock at its par value.
Itâs worth much more than that,â he explained with great care, âand if you come to own a share you will be a capitalist.â
For the sake of being a capitalist I saved twenty-seven dollars and a half that first time around. The next summer my daily earnings were raised from fifty to seventy-five cents. And by the end of the third summer the combined savings totaled one hundred dollars. I was sold the share of stock as promised and became a capitalist at the age of eleven. The feat won a treasured compliment from my father, which was multiplied many times over in the compliments I paid myself. Iâve never ceased being a capitalist since then.â
A Motherâs driving influence - biographyâAny signs of backsliding from his dedication to work were dealt with in summary fashion by his mother. When he was about twelve, he was put in charge of an old dump cart, pulled by a sway back horse named Old Bleuch. His job was to collect sawdust from the sawmill and dump it into a separate field to be used as additional fuel for a nearby power plant. It was boring work, and Marriner sought diversions. Squirrels abounded in the area, and one day he set a trap on one of his trips from the mill to the dump, finding on his return that he had bagged a squirrel. He continued the process for some days until he had caught several live squirrels. But to enjoy his dominion all by himself struck him as selfish, and he thought that his captives would make an imperial gift to his mother. At the presentation ceremony, however, there was no word of thanks. Ellen pursed her lips, opened the door of the cage and released the squirrels. Her motive was not kindness to animals, but to punish Marriner for allowing himself to be distracted by the antics of squirrels when all his thoughts should have been focused on increasing the number of loads he hauled from the mill to the dump yard.â
Frog Legs, BiographyâThere was a far more serious breach of discipline. The summer Marriner was nearing fourteen, he and one of his classmates worked together in the lumber yard, stacking boxwood. One day they were seized by the idea that if they put a roof of wood across an aisle formed by the piles of stacked wood, they would have a little house of their own. Having done that, they realized they had a craving for frogsâ legs, and there were swarms of frogs in a nearby creek. Each morning when Marriner left for work, he managed to conceal in his lunch pail some flour, salt, pepper and kitchen oil. His coconspirator brought to work a BB gun and some tapioca. Tapioca fired at the frogs stunned them. The two boys then rushed in, cut the legs off, skinned them, and retreated to the little house they had made. They built a fire inside and Marriner fried the legs to a turn. The slaughter continued for several weeks to the delight of the boyâs stomachs and to their pride in their shrewdness.
There came a day, however, when a plume of smoke rising from the boxwood caught the eye of theâyard foreman who was highly sensitive to the ever present danger of fire in the area. He rushed to the peril point, discovered the two boys at their meal of frogsâ legs, raked them fore and aft for their criminal negligence, and threatened them with exposure to a punishing world. After the foremanâs wrath blew itself out, the crime was buried in the secret archives of his memory. No report of the deed was conveyed to David Eccles, or to the latterâs proconsul, Ellen. Marriner and his classmate, trembling in every limb from their brush with disaster, were transferred to another job.â
ConclusionTodayâs episode was written, edited, and produced by me, Alexander Bagehot. Reach out with your feedback, comments, and questions on twitter or via my website www.thebanksterpodcast.com. Leave a rating and share the podcast with your coworkers and classmates. Thanks to all of you for listening, and Iâll see you next time on The Bankster Podcast!
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The Fed just put in their order for next yearâs cash - a whopping $233 Billion. With all of that new money distributed through Federal Reserve Banks throughout the country it begs the question - Has the Fed ever been robbed? Todayâs episode!
IntroThis is Alexander Bagehot, and youâre listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Each Federal Reserve Bank is responsible for distributing the paper currency into circulation. As we learned in Episode 2 of Season 1, the Treasury prints the money and the Federal Reserve distributes it. Every summer the Federal Reserveâs Board of Governors sends a âCurrency Print Orderâ to the Treasury Department, telling them how much paper currency they would like for the following calendar year. So the order for next yearâs money includes over 7.4 Million notes worth over $230Billion. Of those 7.4 Million bills the 2.1 Million were for $1, 1.8 Million $20 and 1.6 Million $100.The money will be printed in either Washington DC or Fort Worth, Texas and then delivered to one of the 12 Federal Reserve Banks. That is a lot of cash!
Safeguarding this money until it is picked up by local and international banks is one of the most important jobs of the Federal Reserve. But it begs the question, Has the Fed ever been robbed?
Iâm working on a number of great upcoming shows, and seeing the Currency Print Order come out the week before last, I decided to rerun a story I did last about the Chicago Mobâs attempted robbery of the Federal Reserve. For those of you that are registered for the show notes emails youâll get an email this weekend summarizing the last two episodes and links to all of the great resources used. For those of you not registered - you should do so - itâs a great community, www.thebanksterpodcast.com.
Ok - onto the robbery!
RobberyProhibition was nearing its end in the United States in the early 1930âs. The decade long ban of the sale of alcohol had given tremendous rise to organized crime all over the country, but Chicago stood out as especially infamous. This was the age of Al Capone, tommy guns, and speakeasies.
The Federal Reserve Bank of Chicago is a 17 story building with impressive corinthian columns. It was completed in 1922 and sits on the corner of Jackson and LaSalle at the heart of the cityâs financial district.
Our story begins a short block west of the Fed on Jackson street at just after midnight on the morning of September 22, 1933. Five gangsters of the Barker-Karpis gang sat in a Hudson Sudan waiting and watching. The car had been outfitted with bulletproof glass windows and a specially designed exhaust that spewed dark smoke when the gangsters wanted to cloud an escape. Their moment had nearly arrived. They had received a tip about a transfer that would be happening early in the morning of the 22nd. Alvin Karpis sat in the driverâs seat with Fred and âDocâ Barker beside him. George Ziegler and Bryan Bolton were also in the car with their Thompson submachine guns loaded - the infamous Tommy guns.
Karpis pulled the car forward when they saw the door to the Federal Reserve bank open and four men walk out into the night, two security guards and one man pushing a wheelbarrow stacked high with hefty bags. Karpis pulled the car up to the bank and abruptly stopped in front of the man with the wheelbarrow. Fred and George hopped out of the car with their Tommy guns loaded to fire. Within a minute they had grabbed the big bags and thrown them in the car without any shots fired. Karpis hit the gas and accelerated North.
They zig-zagged west and north a few blocks until they reached Adams street. At which time they hooked a left and zoomed over the Chicago river. The streets were mostly empty at this early hour of the night and the gangsters blew through the first five blocks west of the river. But just as they were making a right to go north on Halsted street they slammed straight into an oncoming Ford coupe. The accident threw their car into a telephone pole. As the glass from the accident was still falling two Chicago policemen, making their nightly rounds, happened to be coming up on the very intersection.
One of them, ran up to the Ford coupe from which they heard women screaming. The other officer, Miles Cunningham headed towards the Hudson, unknowingly taking his last few steps. Doc Barker saw Officer Cunningham coming over and yelled out, âCop!â At which point Bryan Bolton aimed his Tommy gun and fired a round of shots right into Officer Cunningham, killing him instantly. The gangsters all hopped out of their car and commandeered another vehicle that had pulled up after the accident.
A few of them began unloading the heavy Federal Reserve bags from the crashed car into the newly stolen one. The others covered them by opening fire on the other policeman. When the second car of the night was full they took off again, southbound this time. They left the policeman and the passengers in the other car shocked and terrified but unhurt. However, during the streetside shootout one of the gangsters must have been injured because there was fresh blood found at the car afterwards.
To their utmost dismay and frustration, the gangsters made it only two miles south, to about 21st street, before their second car of the night ran out of gas. Once again they jumped out of the car flagged down another passing car with their Tommy guns and moved the merchandise. Now in car number three for the night Karpis took off. They made it to their destination, a garage on the southwest side of the city. I can only imagine the frustration that they were feeling as they unloaded the heavy bags they had stolen from the Federal Reserve. The escape plan had not gone as planned.
However, Iâm sure they were anxious to open the bags and count the money that they had stolen. I donât know if they untied the bags or cut into them, but that anxious excitement to count the money they thought would make them rich quickly dissipated as they saw the contents of the bags.
They were full of, listen to this, newspapers, mail, and old checks. Turns out the tip theyâd gotten about the big payout transfer scheduled for September 22 wasnât as solid as they thought.
None of these gangsters were ever charged for the crime. Alvin Karpis would be the final FBI designated âPublic Enemy #1â. He was captured and arrested by J Edgar Hoover himself in New Orleans almost three years after the robbery of the Fed in Chicago. He spent 26 years in the Alcatraz prison in the San Francisco Bay - the longest person to serve there.
A few years later, in 1939, âDocâ Barker was also captured and sent to Azkaban. He, along with 3 other inmates attempted escape. They sawed through the prison bars, climbed the high wall and made it to the sea. But they didnât make it far before they were pushed back by the tide. While on the shore of the island prison, hastily attempting to make a raft from scraps of wood on the beach, guards from the tower above opened fire on them. âDocâ was shot in the head and died shortly thereafter from the wound.
âDocââs brother Fred died in an incredible gun battle with the FBI in Florida in 1935. He and his mother âMaâ Barker kept up the gun fight for over 5 hours before they were both shot and killed. Bryan Bolton, captured in January of 1935 is suspected as having had a hand in giving the information to the FBI about the whereabouts of Fred and Ma Barker. The final gangster, George Ziegler, was the first to go, shot by fellow gangsters in a drive by shooting in Chicago in March of 1934.
Boy oh boy. Hollywood honestly could not have written a more intense bank robbery, Chicago gangster scene than this one! So despite the billions and billions of dollars of cash that the Federal Reserve holds, this unbelievably true event from 80 years ago stands as the only time a Federal Reserve Bank has been robbed. And all the gangsters got out of it was 50 lbs of old newspapers and mail.
ConclusionIf you havenât already, you really should sign up for the show notes. Every episode I send out an email summary of all the key points and takeaways from the show, as well as links to more information. In the show notes to todayâs episode, Iâll include some of the incredible sources I used during the making of this episode. I owe most of the content to an article on the front page of the Chicago Daily Tribune from September 23, 1933; a police memorial to officer Cunningham; and a few pages from a book called Public Enemies by Bryan Burroughs.
As always, send in your comments and questions about the Centralverse or the Bankster Podcast in general via email ([email protected]) or Twitter or Facebook. Open up your phone now and leave a review of the podcast on whatever podcast app youâre listening to at this moment! Itâs the best way to help others hear the incredible story of the one and only robbery of the Federal Reserve.
Todayâs episode was written, edited, and produced by me, Alexander Bagehot. I dedicate this episode to Miles Cunningham. And to everybody else, thanks for listening. Iâm Alexander Bagehot, and Iâll see you next time on The Bankster Podcast!
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