Forbes Magazine reported that Federal Reserve Chairmen Ben S. Bernanke admitted that two years ago, during the peak of the financial crisis, the Federal Reserve was loaning money to major American corporations. On the surface this sounds okay since if those enterprises had gone under a lot of people would have been unemployed. But how did those corporations get access to those loans? I walk down my street and see plenty of empty storefronts - businesses that have gone under because of the lack of credit incident to the financial crisis of 2008. Were they eligible for Federal Reserve super-mega low interest loans? The answer is no.
By definition the Federal Reserve Bank is not a traditional bank. They are our banks' bank. Their purpose is not to make consumer or commercial loans. I think the biggest question is not why the Federal Reserve suddenly became a commercial bank, but how did they chose their commercial customers. The Forbes article mentioned two customers: Caterpillar and McDonald's. A quick search of the Federal Election Commission website revealed that both corporations are contributors to the President's re-election. If I were a cynical person I might suspect that maybe by contributing to the Democratic Party, and the President in particular, that might qualify a corporation to be a commercial customer of the Federal Reserve Bank.
The Forbes article also mentioned that Bernanke confessed to loaning $1.5 trillion dollars (to both financial institutions and private corporations). I wonder where the Federal Reserve Bank came up with such a huge cash sum to gamble with? I confess that like most Americans I am not privy to the inner workers of our Federal Reserve Bank. The Bank is shrouded in mystery and is not accountable, even to Congress. There has never been a complete audit of the bank. Therefore only members of its board can state with any confidence what their actual cash reserves are. Mysteries like this are a playground for a cynical mind to easily conjure the notion that they didn't have $1.5 trillion dollars handy to risk. Instead, they started the printing presses and inflated our currency. What if those clients had defaulted and the bank unable to recover those funds? Such a default could result in our dollars being worth a lot less and enormous inflation.
Chairmen Bernanke is a gambler but I would prefer he restricted his risks on parachuting or bungee -jumping instead of betting with the buying power of the money in my pocket. This incident definitely dramatizes the immediate need for Congressional oversight of the Federal Reserve Bank.
Incidentally, Dr. Ron Paul. is the only candidate running for president today calling for accountability of the Federal Reserve.