By Sens. Bernie Sanders and Elizabeth Warren
The decisions made by the next chair of the Federal Reserve will have a powerful impact on the economic well-being of every person in America.
While the largest financial institutions and corporations in this country have been bailed out and are now back to making enormous profits and rewarding their executives with outsized compensation packages, recovery hasn't gone so well for the rest of America. Middle class families have continued to lose ground economically, the number of Americans living in poverty is near an all-time high, and the gap between the very rich and everyone else is growing wider.
The next Fed chair will have enormous power and influence over our entire financial system and the direction of the economy. The Fed is responsible not only for our country's monetary policy, but it is also a key regulator of financial institutions. In our view, the president's nominee for Fed chair must be committed to improving the lives of working Americans who are still struggling through the worst economic crisis since the Great Depression.
To that end, we think any Fed chair nominee should be able to answer the following four questions:
Question 1: Do you believe that the Fed's top priority should be to fulfill its full employment mandate?
The U.S. continues to face a major crisis in unemployment. When Wall Street was on the verge of collapse, the Fed acted aggressively and with a fierce sense of urgency to save the financial system. Will you act with the same sense of urgency to combat the unemployment crisis in America today, and will you make clear what specific actions you will take? What rate do you think is acceptable and should be the Fed's target?
Question 2: If you were to be confirmed as chair of the Fed, would you work to break up "too-big-to-fail" financial institutions so that they could no longer pose a catastrophic risk to the economy?
The financial institutions that are too-big-to-fail played a major role in undermining the American economy and driving our country into a severe recession in 2008. Yet today the four biggest banks are 30 percent bigger than they were then, and the six largest financial institutions now have assets equivalent to two-thirds of our GDP. By any measure, "Too Big" has gotten bigger. The risk they pose is clear. As Richard Fisher, President of the Federal Reserve Bank of Dallas, said last year, "institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism " Achieving an economy relatively free from financial crises requires us to have the fortitude to break up the giant banks."
Question 3: Do you believe that the deregulation of Wall Street, including the repeal of the Glass-Steagall Act and exempting derivatives from regulation, significantly contributed to the worst financial crisis since the Great Depression?
The next chair of the Federal Reserve will play an important leadership role in dealing with too-big-to-fail banks and in shaping the rules that govern them, so it is important to assess the Fed chair's views toward deregulation, particularly toward the massive deregulations of the 1980's and 1990's that permitted the TBTF banks to take on huge risks. There is a lot more work to do in implementation of the Dodd-Frank Act and to minimize the risk of future crises, and the Fed will play a critical leadership role.
Question 4: What would you do to divert the $2 trillion in excess reserves that financial institutions have parked at the Fed into more productive purposes, such as helping small- and medium-sized businesses create jobs?
Five years ago, the Fed bailed out the largest financial institutions in the country but put no restrictions on the funds to make sure that lending increased for small businesses. At the same time, the Fed began paying interest on excess reserves, and the excess reserves parked at the Fed have skyrocketed as a result rather than going into productive lending. T he reality is that, despite promises and intentions that the Fed's efforts would help support small businesses, much more work needs to get done to move money from Wall Street to Main Street.
The next Fed chair will have an opportunity to get our economy back on track and to help rebuild America's middle class. But that will require the right temperament and a willingness to take on Wall Street CEOs when necessary. It is critical that the next Fed chair make a genuine, long-term commitment to supporting those who don't have armies of lobbyists and lawyers to advance their interests in Washington -- working and middle-class families.