August 3, 2025 • 37 mins
Newt talks with Andrew Levin, Professor of Economics at Dartmouth College, about his recent policy brief, “The Federal Reserve Should Welcome the Appointment of an Independent Inspector General.” They discuss the controversial $3 billion dollar renovation project at the Federal Reserve Building, highlighting the ballooning costs and luxurious upgrades such as glass atriums and rooftop gardens. Levin argues for increased accountability, suggesting the appointment of an independent Inspector General and greater Congressional oversight. He emphasizes the need for transparency and reform within the Federal Reserve, comparing its practices to other central banks and federal agencies. They also discuss the Fed's monetary policy, its independence, and the lack of dissent among its board members, calling for a shift in culture and leadership. Levin proposes practical reforms, including integrating the Fed's budget into the federal budget process and appointing a presidentially confirmed Inspector General to ensure accountability and transparency.
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Episode Transcript
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Speaker 1 (00:04):
On this episode of the News World. On Thursday, July
twenty fourth, President Trump, along with Senator Tim Scott, chairman
of the Senate Banking Committee, visited the Federal Reserve Building,
taking a tour of the three billion dollar construction project underway.
They were accompanied by Federal Reserve Chairman Jerome Power. At
(00:25):
a press conference after the tour, they discussed the ballooning
costs of the project. The renovation project has soared from
one point nine billion to three billion dollars in construction
cost in recent years, So just what are your taxpayer
dollars buying? Well, some of the upgrades including glass enclosed hatreoms,
(00:50):
rooftop gardens for the exclusive use of its officials and staff.
In his recent policy brief, the Federal Reserve should welcome
the appointment of an independent Inspector General. Andrew Levin details
why the Fed's headquarters is like building quote a Versailles
Palace on the National Mall. I'm really pleased to welcome
(01:12):
my guest, Andrew Levin. He is a professor of economics
at Dartmouth College. He worked at the Federal Reserve Board
for two decades, including two years as a special advisor
on Monetary Policy, Strategy and Communications. Andrew, welcome and thank
(01:38):
you for joining me in news World.
Speaker 2 (01:40):
What's great to be with you.
Speaker 1 (01:42):
Before we dive in, tell me how you got to
the Federal Reserve in what your years there were, like.
Speaker 2 (01:48):
I started there in nineteen ninety two. This was in
the green Span era, and over the course of the nineties,
Alan Greenspan was considered the maestro and later he was
even called the favor of the world. Because the US
economy got pretty unscathed through the Asian financial crisis in
the late nineties and there was a Russian bond default.
(02:10):
But Roger Ferguson was the vice chair and had come
from a management background, and it was very careful in
bay frugal and recognized that Congress was looking over the
FED shoulders. So in nineteen ninety nine, the FED launched
a major renovation of its headquarter building. It's called the
Ecchos Building. It was opened in nineteen thirty seven during
(02:30):
the Great Depression. Beautiful, spectacular building. But during that period
from nineteen ninety nine to two thousand and three, they
did a major renovation. They replaced the roof, replaced all
the major building equipment. They took out asbestos insulation which
was still in some of the walls, replaced all the wiring,
all the plumbing, all the ventilation ducts. They refurbished all
(02:53):
the furniture, the carpets, everything, and it was done carefully
over three and a half years, twenty two stages. So
each group of staff was sent to an off site
location for six months, including me. I remember it, and
when we came back, we're like, Wow, it's a beautiful building.
We got a new carpet and some new furniture, and
the bathrooms look a lot nice sided. If you'd ask
(03:15):
me in two thousand and three when they finished the innovation,
do we need a billion dollar upgrade? And remember we're
talking about less than a thousand people who work in
that building, so a billion dollars it's like, I'm more
than a million dollars per person. I would have just said,
that's never going to happen. Roger Ferguson, Alis Rivlin, Donald Cone,
(03:35):
who was the next viceair after. They were all very frugal,
very careful. These are public funds. We can't waste it.
Speaker 1 (03:42):
I mean, when you put it that way, it's almost
beyond absurd.
Speaker 2 (03:46):
Well, I think that It's important here to understand that
this is taxpayer money. And there's been some reports in
some media outlets that have kind of suggested, oh, the
FED makes its own money and it can do whatever
it wants with it it. That's false, Okay. The fact
of the matter is, and Chair Powell himself has said
this on numerous occasions, these are public funds. Now. In
(04:09):
normal times, the FED actually makes a profit from its
paper cash, and the right that it's had since nineteen
thirteen when the FED was created is take a small
slice of those profits and pay its staff, pay you
for electricity, pay for renovation of its building. Okay. All
the rest of it goes to the treasury, either to
reduce the debt or to cut taxes, or to find
(04:32):
it some new programs. Okay, it's public funds now. The
FED in twenty twenty had a major balance sheet program.
They lost a rituillion dollars. So for the last three
years the FED has not been making profits, it's been
losing money. Well, how does it cover its expenses now,
including these grand new buildings. Answer, they're borrowing from the public.
(04:55):
And what's amazing about that is it doesn't count in
the debt ceiling. The federers serve's budget is off ballance sheet,
so the Federal Reserve can borrow from the public and
essentially increase the national debt without having to go through Congress.
Speaker 1 (05:10):
To be again, just for those of us who lack
the kind of knowledge you have, how does the FED
make money?
Speaker 2 (05:17):
It's actually pretty simple. The FED when they issue paper
cash and right now, these are dollar bills. If you
look one in your wallet, twenty dollars bill, at the
top of it, it says Federal Reserve note. Think of
it as an iou. Now, when the FED was created,
we under the gold standard, and so it literally was
an iou. You could get a bar of gold or
the equivalent of gold coins or whatever for those dollar bills.
(05:40):
We went off the gold standard in the thirties, so
since then it's trust and you can use those dollar
bills to pay for things, or you can use it
to pay your taxes. In April, they're IOUs. They don't
pay any interest. So the great thing for the FED,
the reason it's such a profitable monopoly, is because the
FED uses those paper dollar bills to buy treasury securities.
(06:04):
The treasury securities pay interest. The interest earnings on the
fedce portfolio are used to cover its expenses, and then
the rest goes back to the Treasury. That was the
deal Congress created in nineteen thirteen. That's the way it
worked all the way until three years ago. Now it's
gone because the Federal Reserve basically wasted a trillion dollars
(06:26):
more than a trillion dollars mismanaging its balance sheet. There's
no profits. They're borrowing to cover their expenses.
Speaker 1 (06:34):
I mean, isn't that an unstable system?
Speaker 2 (06:37):
Well, I think that there's levels here of problems in
the Federal Reserve, and the Secretary Bscent recently said there
should be a comprehensive review of the Federal Reserve. I
totally agree. Congress should create a blue ribbon commission of experts,
independent experts to do a careful review the governance, the accountability,
(06:57):
the transparency. It's a complex system with regional Federal Reserve
banks and the headquarters in DC. One of the problems,
I call it the monarchy at the FED, is the
FED chair is too powerful. When the FED was created,
the expectation from Congress was it would be a board
or a commission of experts like the Supreme Court, and
(07:18):
you know, the Supreme Court. The chief does this is
first among equals, sometimes gets outvoted, doesn't always write the
opinion at the Federal Reserve. Whenever you hear about it,
it's the chair. The photos either of the headquarter billing
or of the FED Chair. It says everyone else is
considered deputies and subordinates. And so really the problem in
(07:39):
the law is the FED Chair is not just chair.
He's also chief executive officer, and so everything goes through him.
Chair Palell owns all this. He is the one who
oversaw these building renovations. He's the one who oversaw the
trillion dollar losses on the balance sheet. And we can
list other things too, Boss Congress needs to hold the
(08:01):
FED accountable.
Speaker 1 (08:03):
The point you made, which despite all the years I've
looked at the FED as a monitory institution, it never
quite occurred to me that with almost a thousand employees,
it actually has to be run. He didn't just have
a public policy job. He has a management job.
Speaker 2 (08:19):
In principle, the vice Chair of the Federal Reserve would
do the management part. And that's the way it worked
under Hells Rivelin in the nineties and then under Roger
Ferguson and then under Donald Cone. The vice Chair of
the Federal Reserve right now is Phil Jefferson, but he's
almost invisible, almost literally invisible since he took that job.
We know that he's there because he does sign the
(08:43):
budget memos that they approve every December.
Speaker 1 (08:46):
Unless he has an auto pen.
Speaker 2 (08:48):
But it's interesting because the way those budget memos are
the cover page, it's from the COO and CFO of
the Federal Reserve Board the DC headquarters. Okay, the co
and the CFO via the vice chair to the board.
Now what you might have thought would happened, like a
board of a hospital, or the board of a nonprofit
or the board of a corporation, right that there would
(09:10):
be a meeting of the board to have a pretty
animated discussion. The Federers are a board doesn't do that
for many, many many years, as far back as we
can trace. They do what's called a notation vote, which
means the budget it is sent around to each of
the seven governors and they just electronically approve it. They
never have a meeting, which means there's no government. In
(09:33):
the Sunshine Act, there's no debate, there's no discussion. It's
all completely invisible. And again, Congress should look into this,
and Congress should probably require that the federals are board
in approving its own budget and the budgets of the
regional Feds. Should be a public, open meeting and members
of the press and members of the public could be
there and say, well, wait a minute here, why do
(09:54):
you need to build something that's more expensive than versaw.
Speaker 1 (10:00):
Today has ten times as big as staff as it
had in nineteen thirty six, five times bigger than nineteen
fifty one. They have increased by about twenty percent since
twenty ten at a time when the rest of the
government is getting smaller. What has led to this substantial
growth in just the staffing of the Federal Reserve.
Speaker 2 (10:25):
Well, there's an immediate cause and then there's a deeper cause,
and so we can talk about both of those. The
immediate cause is the Federal Reserve has its own budget
that doesn't go through Congress, it doesn't go through a
propriational review. Now, contrasts that with Securities and Exchange Commission. Okay,
the SEC is an independent agency with independent commissioners. It's
(10:50):
self funded pretty much through the fees on security transactions
that the SEC charges. But SEC's budget is completely transparent
and it goes through the Congressional Creation's process every year.
Members of Commerce and those committees get to see it
and they can raise questions. And by the way, the
SEC doesn't even own any buildings. It leases all of
(11:10):
its office space from the GSA, so it's depending on
GSA to do the maintenance and if something needs to
be changed, GSA takes care of it. It's you know,
like it's great when you have a landlord who's really
nice and takes care of things. The SEC is carefully reviewed.
The Federal Reserve is not. Those budgets are in internal
(11:30):
memos that are very opaque. Those that are posted on
the foyer page. There's no index to them. You have
to basically know what you're looking forward to even find it.
They're very slow in releasing those internal budget memos. So
the one that was approved last December was not released
until two weeks ago, which, by the way, is a
(11:51):
violation of the law because under the Freedom Inferation Act,
they're supposed to release it right away, within a week
or a month. But the main point is that process
is very opaque. It's hidden. Now, why why is this? Well,
the answer is because the Federal Serve has basically exempted
itself from the law. Nineteen twenty one, Congress passed a
(12:15):
law it's called the Budget and Accounting Act. Every other
federal agency follows. The Act is very clear, every independent
agency is supposed to be included in the federal budget.
But the FED quietly in the twenties and thirties and
ever since then, said no, we don't need to do that.
And so I think it's time now for Congress and
(12:36):
the White House to say, sorry, FED, you guys got
to follow the law just like everyone else.
Speaker 1 (12:41):
Well, you're suggesting would be a profound shift from a
theoretically independent FED to a FED which at least indirectly
would actually be held accountable.
Speaker 2 (12:52):
By the way the US Constitution, the founders were very wise,
and they were looking at the experience in Britain and
in France and other countries in Europe. And so the
conclution very clearly delegated Congress with the duty to regulate
the value of money. It's crystal clear Article one, Congress
shall regulate the value of money, not the White House,
not the executive branch. Congress is the Federal Reserve's boss. Now,
(13:16):
when we say independence, What we mean is that at
each meeting that the Fed's Madge Policy Committee meets, there's
twelve experts. They bring their own points of view, they
have debates, they have a majority vote, and that's the
decision of what the interest rate's going to be for
the next six weeks, and ideally they have a strategy
how that's going to be adjusted over time, and everyone
(13:38):
understands the strategy. That's what we mean by independence. Other
central banks, the European Central Bank, the Bank of England,
the Bank of Canada, they all have much more oversight
of the administration, the budgets, the buildings, all these other things.
The FED is completely unique in having no oversight whatsoever
(13:59):
of its and no external reviews. Every other major central
bank on the planet has external reviews. For example, the
European Central Bank. There's a Supreme Audit Authority of the
European Union, and that Supreme Audit Authority, which is kind
of like the US Government Accountability Office the JO. In Europe,
(14:21):
the Supreme Audit Authority does performance reviews of the ECB,
the European Central Bank. They do performance reviews of all
the operations and programs and budgets and everything else. Now,
not to say it's perfect, because no organization's perfect, but
the point is it's all open and transparent, and the
European audit Authory can go to the European parliaments. They
(14:44):
were concerned. And by the way, guess what, the ECB
is shrinking the number of buildings they're using in Frankfurt.
They're going down from three to two. So the irony
here that at the same time the Federal Reserve is
doing this major spectacular upgrade to create a side palace
on the National Mall, the ECB is being frugal in
shrinking and taking advantage of more people working remotely and downsizing.
Speaker 1 (15:09):
Well, it just seems to me that that would require
a profound shift in the culture of the agency.
Speaker 2 (15:17):
I agree with that. I think it also require some
profound shift in members of Congress. And they're thinking about
this because I think that in the past, let's just say,
the last few years, it's been amazing how differential Congress was.
The Senate Banking Committee is really the Fed's boss. Okay,
(15:38):
they're the ones who approve that confirm the top FED officials.
They have hearings with the FED Chair and other FED
officials whenever they want, and under Sherif Brown, there were
no hearings about the fed's buildings, or its budget, or
its balance sheet programs none. So in effect, the Senate
Banking Committee was saying to the FED, go ahead, to
(16:02):
every want, we trust you, and if you think this
is worth a tillion dollars, go ahead, And if you
think you need a three billion dollar palace, that's fine
with us. Now give credit to Senator Tim Scott and
some new members of the Center Bank Committee who are
now saying, hey, we've got to be responsible here. Under
the Constitution, the Congress is the fedce boss. That can't
(16:26):
abdicate that responsibility. They have to take it seriously. And
so I think the fact that Senator Scott went over
to the Fed's building to take a first ten look
is remarkable because I don't know when the last time
that's happened.
Speaker 1 (16:54):
There's this constant establishment mantra that the FED has to
remain independent, that the FED is sakrasanct that have mere
politicians starting to question the FED threatens the very heart
of our monetary system. And to me, it was always
amazing that the FED was somehow on a pedestal you.
Speaker 2 (17:13):
May remember this book. Alan Greenspan was referred to as
the High Priest of the Temple and the book was
called Secrets of the Temple. And when Alan Greenspan would
speak to Congress, there was a point where a senator
asked him a question a hearing and Alan Greenspin said, sorry, Senator,
that's not a well framed question. I'm not going to
answer that, And the senator is kind of embarrassed, almost
(17:34):
like a pupil in your classroom. I and you slapped
the wrist. Now, Alan Greenspan was the maestro. He was
there for twenty years this chair. In the end, I
think people realized that actually he didn't get things perfect,
that some of the decisions that Fed made during the
nineties and early two thousands were partly responsible for the
financial crisis that we had. But the main point is
(17:57):
that Congress was very deferential to green Spain. But Roger Ferguson,
Alice Revlin and Ton Kom were the vice chairs during
that period, being very frugal and so the extent to
which Congress had questions, they were questions about monte policy
and banking supervision, which is the fed's two key responsibilities.
(18:17):
There were no questions or concerns about the buildings or
the staff, or the payrolls, or the salaries or any
of that, because it was very carefully managed and very frugal.
Speaker 1 (18:27):
So when you talk about frugality, though the salaries of
the senior staff of the Federal Board exceed those of
any Supreme Court justice, the Fed Bank President's salaries are
higher than the salary of the Presidented States and nearly
twice as high as the Secretor of the Treasury. Now,
if you're getting that kind of a salary, frugality doesn't
(18:48):
necessarily grow out of the size of your bank account.
Speaker 2 (18:51):
Well, I think the worst case here, really, And there
was a Senate hearing about this. It wasn't the Senate
Banking Committee. It was a subcommittee in twenty twenty three.
Give Senator Elizabeth Warren some credit here because I think
she was the head of that subcommittee at the time.
They brought in the Fed Inspector General and they asked him,
is it true that you're being paid three hundred eighty
(19:13):
eight thousand dollars a year and this is two years ago,
and he said yes, of course, he said, that's the
average salary of all my peers who are the heads
of the other departments at the Federal Reserve Board three
hundred and eighty eight thousand dollars. Now, with practical certainty,
we can say that all of those department heads at
(19:34):
the Federal Reserve Board are now paid more than the
Presidented States. The COO, the CFO, the Chief Legal Counsel,
and the Inspector General are paid more than the Presidented States. Now,
I think it's fair to say, you know, are we
gang what we're paying for? Right? You say, well, I've
paid higher price, you know, to get more quality. But
(19:56):
the fact of the matter is that the Inspector General
of the Fed, who is supposed to be reporting to
Congress about everything that may be relevant, did not write
a single report to Congress in the last five years
about the design or cost of the building upgrades. There
were a couple of reports about how the contract process worked,
(20:19):
but nothing about the three billion dollar design, nothing about
the glass atriums, nothing about the rooftop gardens, nothing about
the underground parking garage, nothing about the concourse level. All
these cost drivers that have led to it being more
expensive than versus Palace, and there's nothing from the ig
srec Okay, but we're paying this person four hundred thousand
(20:40):
dollars a year, four hundred and twenty thousand dollars a year. Well,
are we king for it? And I think that's a
legitimate question that Congress should be asking.
Speaker 1 (20:48):
When you think about it, you said it very well
earlier that you kind of felt like you in a
beautiful building when you were working there. I mean, it's
one of the most magnificent buildings in Washington. How could
they conceptualize, given the current deficit and everything else, spending
three point four billion dollars that just strikes me so
(21:12):
arrogant and so out of touch with the American people.
It's crazy.
Speaker 2 (21:16):
I think that point. And by the way, that was
a point that Senator Tim Scott in the Senate Banking
Committee made in a letter that they sent to Chair
Powell about a month ago. They said, these are amenities
that the average American could never even dream of. So
you're talking about roughly a total of two thousand staff
who are working in these two buildings that they're doing
(21:39):
the major part of the upgrade. There's a third building
across the street. They've spent five hundred million dollars on
that one. For five hundred employees. And there's a fourth
building down the street from there that they were going
to spend five hundred million. Now that's been put on hold.
Two and a half billion dollars for two buildings for
eighteen hundred staff. It just mind boggling, as you said.
(22:00):
But because the FED is so insulated, they're so insular,
there's no external reviews. The IG works for the FED chair,
so you can imagine a conversation. We can only imagine.
There's a public record about it. But the IG could
have gone to the Federal Reserve Chair in twenty twenty
or twenty twenty one, or twenty twenty two or twenty
twenty three and said, I'm really concerned here that this
(22:22):
is going off the rails, that this is going to
cause problems for the Federal Reserve. And the FED chair says, sorry,
you work for me. I don't want you to write
anything about this. I don't want you to talk about it.
It just off the table. And I think that was
a big mistake. I think the Federal Reserve has to
be accountable. This is public money, and they can't build
a palace without getting some kind of permission at least
(22:46):
informal permission from Congress, because Congress is the Fed's boss.
We're back again to this question of independence. The FED
can have independence in setting the Federal funds rate every
six weeks. The founders of the Constitution, the founders of
the Federal Reserve in nineteen thirteen, the members of Congress
who created the Matre Policy Committee in the thirties never
(23:07):
imagined the FED would use that authority to build a palace.
Speaker 1 (23:11):
I mean, there's another part of all this, which is
we focus a lot on the Fed setting interest rates.
But isn't it also true that if the bond market
doesn't respond to the interest rates, in in fact, the
bond market sets its own interest rate.
Speaker 2 (23:28):
That's a very deep question you're asking. The normal way
the Federal Reserve has done policy over one hundred years
is in short term money markets. Let's say they're buying
treasury bills and putting out cash, and that pushes dowur
pressure on overnight ingistrates in the federal funds market and
in the treasure repo markets and other short term money markets.
(23:51):
What determines longer term interistrates is expectations about where those
short rates are going to go. That's why there's been
a long understanding for three or four decades now, at
least prey close to half a century now that the
Fed strategy is critical. It's not just about what the
Fed's doing to the current six weeks for the overnight rate.
(24:12):
The strategy is what influences the medium and longer term
interist rates because market participants, investors, businesses are forming expectations, well,
where's the interest rates going to be next year? Where
they're going to be in five years or ten, and
so the critical role of the Federal Reserve has to
play is to help the public and help markets, and
help Congress understand what's our plan and what's our contingency plans.
(24:37):
And a big part of the failure of the FED
in recent years is not just the buildings, and it's
not even just the trillion dollar mismanage of the balance sheet.
It's the fact that they have no strategy. We literally
cannot understand. I'm going to put this on the table here. Now,
why did the Federal Reserve make an emergency cut of
half a percentage point last September, a few weeks before
(24:59):
the presidential election, and now this week with employment data
coming in pretty bad, they're not even considering the possibility
of making a cut at all. I think the President
spoke about this. I think it's fair to say this
is monetary malpractice. The FED is a team of physicians.
The economy is the patient, and the FED owes it
(25:22):
to the patient and the patient's family to give a
clear explanation. What are we doing here, why are we
doing it? What's our plans, what's our conditions and planes?
And that's just been missing.
Speaker 1 (25:48):
Sounds to me like somehow there was a dramatic drop
in effective leadership over the last ten to fifteen years.
I think back to my own career, which in many
ways I've got looked at the Congress when Paul Voker
was chairman, and he was a very strong, very compelling
chairman dealing with a huge problem and doing it very successfully.
(26:10):
Favnan Alan Greenspan for probably a half century. I mean,
these were very competent, very thoughtful figures who were sort
of naturally world figures, because if you want to be
at the FED, you're linked into all the money around
the whole planet. What has happened? Why are we just
suffering through the bureaucratization where the general competence level declines
(26:31):
in the sense of how the world works just gets weaker,
or what's going on?
Speaker 2 (26:36):
How did the constage other There has to be accountability
to the public. Now, for the Federal Reserve, the idea
was the Congress is going to delegate its own power
to regulate the value money to this independent agency, and
its intention was not to delegate it to a single person.
The design in the Federal Reserve Act and in the
(26:58):
amendments in nineteen thirty was this is supposed to be
a board, a commission of experts, like the Supreme Court,
with debates and descents. Sometimes the chair might be wrong,
and maybe the chair doesn't have a clear view of things,
and other people do and there's an open debate about it.
(27:19):
I think the real problem here, the most obvious problem
with the Fed is not the buildings, and it's not
the one trillion dollar ballance sheet. The most obvious problem
is the fact that we went through the year twenty
twenty one with no dissenting votes, zero eight meetings, twelve
people voting every meeting, and zero descents. Almost one hundred
(27:41):
votes cast and zero descents. It's not the Supreme Court.
This is an autocracy. It's a monarchy.
Speaker 1 (27:48):
These just people who are so bought into the culture
of the funeral Reserve chairman that they just can't break out.
Speaker 2 (27:57):
These issues are complex. Wheny ever you talk about it
is usual culture. Why do people do things that they do?
You know, someone new comes in and they're kind of
told what this is how we do things here, and
if you don't follow the way we do things here,
we're going to evict you. The FED chair does control
the board's committees. The FED chair controls the budgets, the
(28:19):
FED chair controls the staff, and the FED chair can
make it very unpleasant for someone in your time, you
might remember Alan Blinder came to the FED. He was
appointed by Bill Clinton and he only stayed for about
fifteen months. It was really clear that Alan Blinder was
not welcome and so he left.
Speaker 1 (28:39):
So it just froze him out.
Speaker 2 (28:41):
Yes, essentially, Yes, a lot of us never been reported,
but people have never asked, well, how come Alan Blinder
stay for such a short period. He was on leave
from Princeton, so of course he went back to being
a professor of Princeton. He's been there ever since. But
why didn't he stay? And I think the answer is,
as you say, essentially that al Green's was not happy
(29:01):
with some of the things that al Blinder was talking
about and doing, and froze him out, and then that
created a precedent for everyone who followed. Congress's intention was
not to have a dictator at the FED. It was
to have a board and a commission.
Speaker 1 (29:15):
What do you think should be done in the inter future?
Speaker 2 (29:18):
Well, number one, the FED should have a presidentially appointed
Inspector General who's confirmed by the Senate. Every other major
federal agency has it. The FED got exempted in nineteen
seventy eight when Congress established the Inspector General's. FED said, oh,
we don't need that. We're small, we're simple, we don't
have any risks, we're frugal. And so Congress said, okay,
(29:41):
you can have an inspector General who's your own employee,
who reports to your FED chair. And I think that
was not unreasonable at the time, under the era of
Alice Rivlin and Roger Ferguson and Donald Cohne, that was
not an unreasonable decision. But now it's clear the FED
has to have a fully independent ig by the way, nonpartisan.
(30:02):
So Senator Rick Scott from Florida and Senator Elizabeth Warren
from Massachusetts, opposite sides of the aisle. They disagree on
lots of other things, but the two of them have
co sponsored a bill to have a presidentially appointed ig
at the Federal Reserve, and Congress could pass that instantly.
Number two, the Photo Reserve should be brought into the
(30:22):
federal budget, even if they're self funded like se see.
Their budget should be totally transparent, and Congress should have
the opportunity to review it every year and ask questions.
We're not just talking about next year, but next decade
or two decades from now, something else comes up. Maybe
it's not Palace of Versailles. Imagine the FED decided that
wanted to have its own golf course in the Nassas. Okay, okay,
(30:46):
well you know they should have to go to Congress
and ask It shouldn't just be up to the FED
chair to say, oh, I love golf and I really
want to have a golf course, and you know I
want to be able to play out there with my colleagues.
It's public funds.
Speaker 1 (30:59):
Thank you. You'll make one of the most devastating critiques
of this Entara fiasco, which is if they showed up
in Congress with a three and a half billion dollar proposal.
They'd have been laughed out of the building because it's crazy.
Speaker 2 (31:15):
You have to ask the question why, and I think
what has started happening right away. And if they'd had
an independent Inspector General instead of an employee, the IG
would have said, wait a minute, here, this is going
to be the most expensive underground parking garage in the world.
Think about it. You're building an underground parking garage right
next to the title base and in the middle of
(31:35):
a swamp. It's extremely expensive to do it. Let's ransom
space at the nearby commercial garage. They're built one above ground. Okay,
but this is totally insane. Same with the glass atriums.
Adding a glass atrium to historic buildings is phenomenally expensive
and defence plans, the architects engineers are really proud, like,
(31:57):
this is going to be really challenging, but we can
do it for a billion dollars. If you're willing to
pay us a billion dollars, we can add glass atriums
to these buildings. But this is where I think Congress
would say, no, these are public funds. You cannot use
them to build expensive glass atriums. Okay, you can repaint
your walls if you find asbestos in some stealed glass windows,
(32:18):
which by the way, they did, and it takes probably
five hundred thousand dollars to remove the asbestos from those
glass windows. Congress is okay, you can use five thousand
dollars to get rid of the last bits of asbesos
from the building that have been there for one hundred years.
The problem with the three billion is most of it
is for amenities that Americans would never dream of. And
(32:40):
that was what Senator Tim Scott said in the letter
to Powell.
Speaker 1 (32:43):
When you talk about amenities, I'm not sure how some
of these things for any normal American could be described
as an amenity. I mean, it's so over the top.
Speaker 2 (32:57):
I worked in that building for most of the twenty
years I was at the FED. There was a couple
of years I was across the street. In six months,
I was down the street while they were doing the renovation. Okay,
but it is a beautiful, spectacular building. It didn't need
glass atriums, it didn't have to have the two sides
and closed. The courtyards are now going to have skylights.
(33:18):
It'll be spectacular like a palace. But the documents of
the fence plans say is this will provide a place
of respite for building users, a place of respite. And
the irony of this, which is acute, is the Federal
Reserve building is right across the street from the National Mall.
When I was there, we would walk across the street
(33:41):
and walk around the Duck Pond, or we walk over
to the World War Two Memorial or even the Lincoln
Memorials only a few hundred yards away. And so do
you really have to have a glass atrium in the
courtyard of the building to provide respite for building users.
Speaker 1 (33:57):
You've got to cut down the arrogance of an institution
that thinks is totally out of control. I agree with
almost all your other recommendations about having a truly independent
Inspector General, having a regular audit, having all major expenditures
actually go through the Congress. This institution has to come
back to being an institution of the American people, not
(34:17):
an institution of a handful of elitists.
Speaker 2 (34:20):
Again, I want to just recommend here, because the FED
is complex, you need a Blue Ribbon commission on the governance.
It should be a board. It should be a commission
like the Supreme Court, the chief Justice is not always right.
It should be first among equals, and so it's not
that hard to fix. For example, Congress could change a
(34:42):
few words in the Federal Reserve Act to make the
staff report to the entire board, all seven of them.
There'd still be a chair who would moderate the meetings
and set the agenda, okay, but the staff would report
to all seven board members. It would get rid of
the monarchy, it would get rid of the autocracy. It
would make the chair first among equals. And then when
(35:03):
there were debates, like with the Supreme Court, we wouldn't
just see the same justice over and over and over again.
It would depend on which one's writing the opinion and
which ones are in the minority, which inventory That's the
way it should be at the Federal Reserve.
Speaker 1 (35:15):
Well, I want to thank you for joining me. We're
going to feature your latest policy brief. The Federal Reserve
should welcome the appointment it would have been an Inspector
General on our show page. I'm going to encourage everyone
to follow the work you're doing at Mertadis dot org
or by visiting your personal website at Dartmouth dot edu
slash eleven. This has been one of the more interesting
(35:38):
and fascinating podcast You really have mastered this and you,
frankly have my head spinning with ideas. Well.
Speaker 2 (35:46):
Great, let's talk again sometime, and I really appreciate your work.
Your podcast is important because it's moving around this legacy
media that's had this lock on public communications for many
decades and now finally the glasses broken and programs like
yours are helping the public to really understand these really
important issues. So thank you.
Speaker 1 (36:11):
Thank you to my guest Andrew Levin. You can get
a link to his policy brief the Federal Reserve should
welcome the appointment of an independent inspector in general on
our show page at newtworld dot com. New World is
produced by Ginglishtree sixty at iHeartMedia. Our executive producer is
Guernsey Sloan. Our researcher is Rachel Peterson. The artwork for
(36:32):
the show was created by Steve Penley. Special thanks to
the team of Ginglishtree sixty. If you've been enjoying Newsworld,
I hope you'll go to Apple Podcasts and both rate
us with five stars and give us a review so
others can learn what it's all about right now. Listeners
of news World can sign up for my three freeweekly
columns at ginglishtree sixty dot com slash newsletter. I'm Newt Gingrich.
(36:57):
This is news World.
On this episode of the News World. On Thursday, July
twenty fourth, President Trump, along with Senator Tim Scott, chairman
of the Senate Banking Committee, visited the Federal Reserve Building,
taking a tour of the three billion dollar construction project underway.
They were accompanied by Federal Reserve Chairman Jerome Power. At
(00:25):
a press conference after the tour, they discussed the ballooning
costs of the project. The renovation project has soared from
one point nine billion to three billion dollars in construction
cost in recent years, So just what are your taxpayer
dollars buying? Well, some of the upgrades including glass enclosed hatreoms,
(00:50):
rooftop gardens for the exclusive use of its officials and staff.
In his recent policy brief, the Federal Reserve should welcome
the appointment of an independent Inspector General. Andrew Levin details
why the Fed's headquarters is like building quote a Versailles
Palace on the National Mall. I'm really pleased to welcome
(01:12):
my guest, Andrew Levin. He is a professor of economics
at Dartmouth College. He worked at the Federal Reserve Board
for two decades, including two years as a special advisor
on Monetary Policy, Strategy and Communications. Andrew, welcome and thank
(01:38):
you for joining me in news World.
Speaker 2 (01:40):
What's great to be with you.
Speaker 1 (01:42):
Before we dive in, tell me how you got to
the Federal Reserve in what your years there were, like.
Speaker 2 (01:48):
I started there in nineteen ninety two. This was in
the green Span era, and over the course of the nineties,
Alan Greenspan was considered the maestro and later he was
even called the favor of the world. Because the US
economy got pretty unscathed through the Asian financial crisis in
the late nineties and there was a Russian bond default.
(02:10):
But Roger Ferguson was the vice chair and had come
from a management background, and it was very careful in
bay frugal and recognized that Congress was looking over the
FED shoulders. So in nineteen ninety nine, the FED launched
a major renovation of its headquarter building. It's called the
Ecchos Building. It was opened in nineteen thirty seven during
(02:30):
the Great Depression. Beautiful, spectacular building. But during that period
from nineteen ninety nine to two thousand and three, they
did a major renovation. They replaced the roof, replaced all
the major building equipment. They took out asbestos insulation which
was still in some of the walls, replaced all the wiring,
all the plumbing, all the ventilation ducts. They refurbished all
(02:53):
the furniture, the carpets, everything, and it was done carefully
over three and a half years, twenty two stages. So
each group of staff was sent to an off site
location for six months, including me. I remember it, and
when we came back, we're like, Wow, it's a beautiful building.
We got a new carpet and some new furniture, and
the bathrooms look a lot nice sided. If you'd ask
(03:15):
me in two thousand and three when they finished the innovation,
do we need a billion dollar upgrade? And remember we're
talking about less than a thousand people who work in
that building, so a billion dollars it's like, I'm more
than a million dollars per person. I would have just said,
that's never going to happen. Roger Ferguson, Alis Rivlin, Donald Cone,
(03:35):
who was the next viceair after. They were all very frugal,
very careful. These are public funds. We can't waste it.
Speaker 1 (03:42):
I mean, when you put it that way, it's almost
beyond absurd.
Speaker 2 (03:46):
Well, I think that It's important here to understand that
this is taxpayer money. And there's been some reports in
some media outlets that have kind of suggested, oh, the
FED makes its own money and it can do whatever
it wants with it it. That's false, Okay. The fact
of the matter is, and Chair Powell himself has said
this on numerous occasions, these are public funds. Now. In
(04:09):
normal times, the FED actually makes a profit from its
paper cash, and the right that it's had since nineteen
thirteen when the FED was created is take a small
slice of those profits and pay its staff, pay you
for electricity, pay for renovation of its building. Okay. All
the rest of it goes to the treasury, either to
reduce the debt or to cut taxes, or to find
(04:32):
it some new programs. Okay, it's public funds now. The
FED in twenty twenty had a major balance sheet program.
They lost a rituillion dollars. So for the last three
years the FED has not been making profits, it's been
losing money. Well, how does it cover its expenses now,
including these grand new buildings. Answer, they're borrowing from the public.
(04:55):
And what's amazing about that is it doesn't count in
the debt ceiling. The federers serve's budget is off ballance sheet,
so the Federal Reserve can borrow from the public and
essentially increase the national debt without having to go through Congress.
Speaker 1 (05:10):
To be again, just for those of us who lack
the kind of knowledge you have, how does the FED
make money?
Speaker 2 (05:17):
It's actually pretty simple. The FED when they issue paper
cash and right now, these are dollar bills. If you
look one in your wallet, twenty dollars bill, at the
top of it, it says Federal Reserve note. Think of
it as an iou. Now, when the FED was created,
we under the gold standard, and so it literally was
an iou. You could get a bar of gold or
the equivalent of gold coins or whatever for those dollar bills.
(05:40):
We went off the gold standard in the thirties, so
since then it's trust and you can use those dollar
bills to pay for things, or you can use it
to pay your taxes. In April, they're IOUs. They don't
pay any interest. So the great thing for the FED,
the reason it's such a profitable monopoly, is because the
FED uses those paper dollar bills to buy treasury securities.
(06:04):
The treasury securities pay interest. The interest earnings on the
fedce portfolio are used to cover its expenses, and then
the rest goes back to the Treasury. That was the
deal Congress created in nineteen thirteen. That's the way it
worked all the way until three years ago. Now it's
gone because the Federal Reserve basically wasted a trillion dollars
(06:26):
more than a trillion dollars mismanaging its balance sheet. There's
no profits. They're borrowing to cover their expenses.
Speaker 1 (06:34):
I mean, isn't that an unstable system?
Speaker 2 (06:37):
Well, I think that there's levels here of problems in
the Federal Reserve, and the Secretary Bscent recently said there
should be a comprehensive review of the Federal Reserve. I
totally agree. Congress should create a blue ribbon commission of experts,
independent experts to do a careful review the governance, the accountability,
(06:57):
the transparency. It's a complex system with regional Federal Reserve
banks and the headquarters in DC. One of the problems,
I call it the monarchy at the FED, is the
FED chair is too powerful. When the FED was created,
the expectation from Congress was it would be a board
or a commission of experts like the Supreme Court, and
(07:18):
you know, the Supreme Court. The chief does this is
first among equals, sometimes gets outvoted, doesn't always write the
opinion at the Federal Reserve. Whenever you hear about it,
it's the chair. The photos either of the headquarter billing
or of the FED Chair. It says everyone else is
considered deputies and subordinates. And so really the problem in
(07:39):
the law is the FED Chair is not just chair.
He's also chief executive officer, and so everything goes through him.
Chair Palell owns all this. He is the one who
oversaw these building renovations. He's the one who oversaw the
trillion dollar losses on the balance sheet. And we can
list other things too, Boss Congress needs to hold the
(08:01):
FED accountable.
Speaker 1 (08:03):
The point you made, which despite all the years I've
looked at the FED as a monitory institution, it never
quite occurred to me that with almost a thousand employees,
it actually has to be run. He didn't just have
a public policy job. He has a management job.
Speaker 2 (08:19):
In principle, the vice Chair of the Federal Reserve would
do the management part. And that's the way it worked
under Hells Rivelin in the nineties and then under Roger
Ferguson and then under Donald Cone. The vice Chair of
the Federal Reserve right now is Phil Jefferson, but he's
almost invisible, almost literally invisible since he took that job.
We know that he's there because he does sign the
(08:43):
budget memos that they approve every December.
Speaker 1 (08:46):
Unless he has an auto pen.
Speaker 2 (08:48):
But it's interesting because the way those budget memos are
the cover page, it's from the COO and CFO of
the Federal Reserve Board the DC headquarters. Okay, the co
and the CFO via the vice chair to the board.
Now what you might have thought would happened, like a
board of a hospital, or the board of a nonprofit
or the board of a corporation, right that there would
(09:10):
be a meeting of the board to have a pretty
animated discussion. The Federers are a board doesn't do that
for many, many many years, as far back as we
can trace. They do what's called a notation vote, which
means the budget it is sent around to each of
the seven governors and they just electronically approve it. They
never have a meeting, which means there's no government. In
(09:33):
the Sunshine Act, there's no debate, there's no discussion. It's
all completely invisible. And again, Congress should look into this,
and Congress should probably require that the federals are board
in approving its own budget and the budgets of the
regional Feds. Should be a public, open meeting and members
of the press and members of the public could be
there and say, well, wait a minute here, why do
(09:54):
you need to build something that's more expensive than versaw.
Speaker 1 (10:00):
Today has ten times as big as staff as it
had in nineteen thirty six, five times bigger than nineteen
fifty one. They have increased by about twenty percent since
twenty ten at a time when the rest of the
government is getting smaller. What has led to this substantial
growth in just the staffing of the Federal Reserve.
Speaker 2 (10:25):
Well, there's an immediate cause and then there's a deeper cause,
and so we can talk about both of those. The
immediate cause is the Federal Reserve has its own budget
that doesn't go through Congress, it doesn't go through a
propriational review. Now, contrasts that with Securities and Exchange Commission. Okay,
the SEC is an independent agency with independent commissioners. It's
(10:50):
self funded pretty much through the fees on security transactions
that the SEC charges. But SEC's budget is completely transparent
and it goes through the Congressional Creation's process every year.
Members of Commerce and those committees get to see it
and they can raise questions. And by the way, the
SEC doesn't even own any buildings. It leases all of
(11:10):
its office space from the GSA, so it's depending on
GSA to do the maintenance and if something needs to
be changed, GSA takes care of it. It's you know,
like it's great when you have a landlord who's really
nice and takes care of things. The SEC is carefully reviewed.
The Federal Reserve is not. Those budgets are in internal
(11:30):
memos that are very opaque. Those that are posted on
the foyer page. There's no index to them. You have
to basically know what you're looking forward to even find it.
They're very slow in releasing those internal budget memos. So
the one that was approved last December was not released
until two weeks ago, which, by the way, is a
(11:51):
violation of the law because under the Freedom Inferation Act,
they're supposed to release it right away, within a week
or a month. But the main point is that process
is very opaque. It's hidden. Now, why why is this? Well,
the answer is because the Federal Serve has basically exempted
itself from the law. Nineteen twenty one, Congress passed a
(12:15):
law it's called the Budget and Accounting Act. Every other
federal agency follows. The Act is very clear, every independent
agency is supposed to be included in the federal budget.
But the FED quietly in the twenties and thirties and
ever since then, said no, we don't need to do that.
And so I think it's time now for Congress and
(12:36):
the White House to say, sorry, FED, you guys got
to follow the law just like everyone else.
Speaker 1 (12:41):
Well, you're suggesting would be a profound shift from a
theoretically independent FED to a FED which at least indirectly
would actually be held accountable.
Speaker 2 (12:52):
By the way the US Constitution, the founders were very wise,
and they were looking at the experience in Britain and
in France and other countries in Europe. And so the
conclution very clearly delegated Congress with the duty to regulate
the value of money. It's crystal clear Article one, Congress
shall regulate the value of money, not the White House,
not the executive branch. Congress is the Federal Reserve's boss. Now,
(13:16):
when we say independence, What we mean is that at
each meeting that the Fed's Madge Policy Committee meets, there's
twelve experts. They bring their own points of view, they
have debates, they have a majority vote, and that's the
decision of what the interest rate's going to be for
the next six weeks, and ideally they have a strategy
how that's going to be adjusted over time, and everyone
(13:38):
understands the strategy. That's what we mean by independence. Other
central banks, the European Central Bank, the Bank of England,
the Bank of Canada, they all have much more oversight
of the administration, the budgets, the buildings, all these other things.
The FED is completely unique in having no oversight whatsoever
(13:59):
of its and no external reviews. Every other major central
bank on the planet has external reviews. For example, the
European Central Bank. There's a Supreme Audit Authority of the
European Union, and that Supreme Audit Authority, which is kind
of like the US Government Accountability Office the JO. In Europe,
(14:21):
the Supreme Audit Authority does performance reviews of the ECB,
the European Central Bank. They do performance reviews of all
the operations and programs and budgets and everything else. Now,
not to say it's perfect, because no organization's perfect, but
the point is it's all open and transparent, and the
European audit Authory can go to the European parliaments. They
(14:44):
were concerned. And by the way, guess what, the ECB
is shrinking the number of buildings they're using in Frankfurt.
They're going down from three to two. So the irony
here that at the same time the Federal Reserve is
doing this major spectacular upgrade to create a side palace
on the National Mall, the ECB is being frugal in
shrinking and taking advantage of more people working remotely and downsizing.
Speaker 1 (15:09):
Well, it just seems to me that that would require
a profound shift in the culture of the agency.
Speaker 2 (15:17):
I agree with that. I think it also require some
profound shift in members of Congress. And they're thinking about
this because I think that in the past, let's just say,
the last few years, it's been amazing how differential Congress was.
The Senate Banking Committee is really the Fed's boss. Okay,
(15:38):
they're the ones who approve that confirm the top FED officials.
They have hearings with the FED Chair and other FED
officials whenever they want, and under Sherif Brown, there were
no hearings about the fed's buildings, or its budget, or
its balance sheet programs none. So in effect, the Senate
Banking Committee was saying to the FED, go ahead, to
(16:02):
every want, we trust you, and if you think this
is worth a tillion dollars, go ahead, And if you
think you need a three billion dollar palace, that's fine
with us. Now give credit to Senator Tim Scott and
some new members of the Center Bank Committee who are
now saying, hey, we've got to be responsible here. Under
the Constitution, the Congress is the fedce boss. That can't
(16:26):
abdicate that responsibility. They have to take it seriously. And
so I think the fact that Senator Scott went over
to the Fed's building to take a first ten look
is remarkable because I don't know when the last time
that's happened.
Speaker 1 (16:54):
There's this constant establishment mantra that the FED has to
remain independent, that the FED is sakrasanct that have mere
politicians starting to question the FED threatens the very heart
of our monetary system. And to me, it was always
amazing that the FED was somehow on a pedestal you.
Speaker 2 (17:13):
May remember this book. Alan Greenspan was referred to as
the High Priest of the Temple and the book was
called Secrets of the Temple. And when Alan Greenspan would
speak to Congress, there was a point where a senator
asked him a question a hearing and Alan Greenspin said, sorry, Senator,
that's not a well framed question. I'm not going to
answer that, And the senator is kind of embarrassed, almost
(17:34):
like a pupil in your classroom. I and you slapped
the wrist. Now, Alan Greenspan was the maestro. He was
there for twenty years this chair. In the end, I
think people realized that actually he didn't get things perfect,
that some of the decisions that Fed made during the
nineties and early two thousands were partly responsible for the
financial crisis that we had. But the main point is
(17:57):
that Congress was very deferential to green Spain. But Roger Ferguson,
Alice Revlin and Ton Kom were the vice chairs during
that period, being very frugal and so the extent to
which Congress had questions, they were questions about monte policy
and banking supervision, which is the fed's two key responsibilities.
(18:17):
There were no questions or concerns about the buildings or
the staff, or the payrolls, or the salaries or any
of that, because it was very carefully managed and very frugal.
Speaker 1 (18:27):
So when you talk about frugality, though the salaries of
the senior staff of the Federal Board exceed those of
any Supreme Court justice, the Fed Bank President's salaries are
higher than the salary of the Presidented States and nearly
twice as high as the Secretor of the Treasury. Now,
if you're getting that kind of a salary, frugality doesn't
(18:48):
necessarily grow out of the size of your bank account.
Speaker 2 (18:51):
Well, I think the worst case here, really, And there
was a Senate hearing about this. It wasn't the Senate
Banking Committee. It was a subcommittee in twenty twenty three.
Give Senator Elizabeth Warren some credit here because I think
she was the head of that subcommittee at the time.
They brought in the Fed Inspector General and they asked him,
is it true that you're being paid three hundred eighty
(19:13):
eight thousand dollars a year and this is two years ago,
and he said yes, of course, he said, that's the
average salary of all my peers who are the heads
of the other departments at the Federal Reserve Board three
hundred and eighty eight thousand dollars. Now, with practical certainty,
we can say that all of those department heads at
(19:34):
the Federal Reserve Board are now paid more than the
Presidented States. The COO, the CFO, the Chief Legal Counsel,
and the Inspector General are paid more than the Presidented States. Now,
I think it's fair to say, you know, are we
gang what we're paying for? Right? You say, well, I've
paid higher price, you know, to get more quality. But
(19:56):
the fact of the matter is that the Inspector General
of the Fed, who is supposed to be reporting to
Congress about everything that may be relevant, did not write
a single report to Congress in the last five years
about the design or cost of the building upgrades. There
were a couple of reports about how the contract process worked,
(20:19):
but nothing about the three billion dollar design, nothing about
the glass atriums, nothing about the rooftop gardens, nothing about
the underground parking garage, nothing about the concourse level. All
these cost drivers that have led to it being more
expensive than versus Palace, and there's nothing from the ig
srec Okay, but we're paying this person four hundred thousand
(20:40):
dollars a year, four hundred and twenty thousand dollars a year. Well,
are we king for it? And I think that's a
legitimate question that Congress should be asking.
Speaker 1 (20:48):
When you think about it, you said it very well
earlier that you kind of felt like you in a
beautiful building when you were working there. I mean, it's
one of the most magnificent buildings in Washington. How could
they conceptualize, given the current deficit and everything else, spending
three point four billion dollars that just strikes me so
(21:12):
arrogant and so out of touch with the American people.
It's crazy.
Speaker 2 (21:16):
I think that point. And by the way, that was
a point that Senator Tim Scott in the Senate Banking
Committee made in a letter that they sent to Chair
Powell about a month ago. They said, these are amenities
that the average American could never even dream of. So
you're talking about roughly a total of two thousand staff
who are working in these two buildings that they're doing
(21:39):
the major part of the upgrade. There's a third building
across the street. They've spent five hundred million dollars on
that one. For five hundred employees. And there's a fourth
building down the street from there that they were going
to spend five hundred million. Now that's been put on hold.
Two and a half billion dollars for two buildings for
eighteen hundred staff. It just mind boggling, as you said.
(22:00):
But because the FED is so insulated, they're so insular,
there's no external reviews. The IG works for the FED chair,
so you can imagine a conversation. We can only imagine.
There's a public record about it. But the IG could
have gone to the Federal Reserve Chair in twenty twenty
or twenty twenty one, or twenty twenty two or twenty
twenty three and said, I'm really concerned here that this
(22:22):
is going off the rails, that this is going to
cause problems for the Federal Reserve. And the FED chair says, sorry,
you work for me. I don't want you to write
anything about this. I don't want you to talk about it.
It just off the table. And I think that was
a big mistake. I think the Federal Reserve has to
be accountable. This is public money, and they can't build
a palace without getting some kind of permission at least
(22:46):
informal permission from Congress, because Congress is the Fed's boss.
We're back again to this question of independence. The FED
can have independence in setting the Federal funds rate every
six weeks. The founders of the Constitution, the founders of
the Federal Reserve in nineteen thirteen, the members of Congress
who created the Matre Policy Committee in the thirties never
(23:07):
imagined the FED would use that authority to build a palace.
Speaker 1 (23:11):
I mean, there's another part of all this, which is
we focus a lot on the Fed setting interest rates.
But isn't it also true that if the bond market
doesn't respond to the interest rates, in in fact, the
bond market sets its own interest rate.
Speaker 2 (23:28):
That's a very deep question you're asking. The normal way
the Federal Reserve has done policy over one hundred years
is in short term money markets. Let's say they're buying
treasury bills and putting out cash, and that pushes dowur
pressure on overnight ingistrates in the federal funds market and
in the treasure repo markets and other short term money markets.
(23:51):
What determines longer term interistrates is expectations about where those
short rates are going to go. That's why there's been
a long understanding for three or four decades now, at
least prey close to half a century now that the
Fed strategy is critical. It's not just about what the
Fed's doing to the current six weeks for the overnight rate.
(24:12):
The strategy is what influences the medium and longer term
interist rates because market participants, investors, businesses are forming expectations, well,
where's the interest rates going to be next year? Where
they're going to be in five years or ten, and
so the critical role of the Federal Reserve has to
play is to help the public and help markets, and
help Congress understand what's our plan and what's our contingency plans.
(24:37):
And a big part of the failure of the FED
in recent years is not just the buildings, and it's
not even just the trillion dollar mismanage of the balance sheet.
It's the fact that they have no strategy. We literally
cannot understand. I'm going to put this on the table here. Now,
why did the Federal Reserve make an emergency cut of
half a percentage point last September, a few weeks before
(24:59):
the presidential election, and now this week with employment data
coming in pretty bad, they're not even considering the possibility
of making a cut at all. I think the President
spoke about this. I think it's fair to say this
is monetary malpractice. The FED is a team of physicians.
The economy is the patient, and the FED owes it
(25:22):
to the patient and the patient's family to give a
clear explanation. What are we doing here, why are we
doing it? What's our plans, what's our conditions and planes?
And that's just been missing.
Speaker 1 (25:48):
Sounds to me like somehow there was a dramatic drop
in effective leadership over the last ten to fifteen years.
I think back to my own career, which in many
ways I've got looked at the Congress when Paul Voker
was chairman, and he was a very strong, very compelling
chairman dealing with a huge problem and doing it very successfully.
(26:10):
Favnan Alan Greenspan for probably a half century. I mean,
these were very competent, very thoughtful figures who were sort
of naturally world figures, because if you want to be
at the FED, you're linked into all the money around
the whole planet. What has happened? Why are we just
suffering through the bureaucratization where the general competence level declines
(26:31):
in the sense of how the world works just gets weaker,
or what's going on?
Speaker 2 (26:36):
How did the constage other There has to be accountability
to the public. Now, for the Federal Reserve, the idea
was the Congress is going to delegate its own power
to regulate the value money to this independent agency, and
its intention was not to delegate it to a single person.
The design in the Federal Reserve Act and in the
(26:58):
amendments in nineteen thirty was this is supposed to be
a board, a commission of experts, like the Supreme Court,
with debates and descents. Sometimes the chair might be wrong,
and maybe the chair doesn't have a clear view of things,
and other people do and there's an open debate about it.
(27:19):
I think the real problem here, the most obvious problem
with the Fed is not the buildings, and it's not
the one trillion dollar ballance sheet. The most obvious problem
is the fact that we went through the year twenty
twenty one with no dissenting votes, zero eight meetings, twelve
people voting every meeting, and zero descents. Almost one hundred
(27:41):
votes cast and zero descents. It's not the Supreme Court.
This is an autocracy. It's a monarchy.
Speaker 1 (27:48):
These just people who are so bought into the culture
of the funeral Reserve chairman that they just can't break out.
Speaker 2 (27:57):
These issues are complex. Wheny ever you talk about it
is usual culture. Why do people do things that they do?
You know, someone new comes in and they're kind of
told what this is how we do things here, and
if you don't follow the way we do things here,
we're going to evict you. The FED chair does control
the board's committees. The FED chair controls the budgets, the
(28:19):
FED chair controls the staff, and the FED chair can
make it very unpleasant for someone in your time, you
might remember Alan Blinder came to the FED. He was
appointed by Bill Clinton and he only stayed for about
fifteen months. It was really clear that Alan Blinder was
not welcome and so he left.
Speaker 1 (28:39):
So it just froze him out.
Speaker 2 (28:41):
Yes, essentially, Yes, a lot of us never been reported,
but people have never asked, well, how come Alan Blinder
stay for such a short period. He was on leave
from Princeton, so of course he went back to being
a professor of Princeton. He's been there ever since. But
why didn't he stay? And I think the answer is,
as you say, essentially that al Green's was not happy
(29:01):
with some of the things that al Blinder was talking
about and doing, and froze him out, and then that
created a precedent for everyone who followed. Congress's intention was
not to have a dictator at the FED. It was
to have a board and a commission.
Speaker 1 (29:15):
What do you think should be done in the inter future?
Speaker 2 (29:18):
Well, number one, the FED should have a presidentially appointed
Inspector General who's confirmed by the Senate. Every other major
federal agency has it. The FED got exempted in nineteen
seventy eight when Congress established the Inspector General's. FED said, oh,
we don't need that. We're small, we're simple, we don't
have any risks, we're frugal. And so Congress said, okay,
(29:41):
you can have an inspector General who's your own employee,
who reports to your FED chair. And I think that
was not unreasonable at the time, under the era of
Alice Rivlin and Roger Ferguson and Donald Cohne, that was
not an unreasonable decision. But now it's clear the FED
has to have a fully independent ig by the way, nonpartisan.
(30:02):
So Senator Rick Scott from Florida and Senator Elizabeth Warren
from Massachusetts, opposite sides of the aisle. They disagree on
lots of other things, but the two of them have
co sponsored a bill to have a presidentially appointed ig
at the Federal Reserve, and Congress could pass that instantly.
Number two, the Photo Reserve should be brought into the
(30:22):
federal budget, even if they're self funded like se see.
Their budget should be totally transparent, and Congress should have
the opportunity to review it every year and ask questions.
We're not just talking about next year, but next decade
or two decades from now, something else comes up. Maybe
it's not Palace of Versailles. Imagine the FED decided that
wanted to have its own golf course in the Nassas. Okay, okay,
(30:46):
well you know they should have to go to Congress
and ask It shouldn't just be up to the FED
chair to say, oh, I love golf and I really
want to have a golf course, and you know I
want to be able to play out there with my colleagues.
It's public funds.
Speaker 1 (30:59):
Thank you. You'll make one of the most devastating critiques
of this Entara fiasco, which is if they showed up
in Congress with a three and a half billion dollar proposal.
They'd have been laughed out of the building because it's crazy.
Speaker 2 (31:15):
You have to ask the question why, and I think
what has started happening right away. And if they'd had
an independent Inspector General instead of an employee, the IG
would have said, wait a minute, here, this is going
to be the most expensive underground parking garage in the world.
Think about it. You're building an underground parking garage right
next to the title base and in the middle of
(31:35):
a swamp. It's extremely expensive to do it. Let's ransom
space at the nearby commercial garage. They're built one above ground. Okay,
but this is totally insane. Same with the glass atriums.
Adding a glass atrium to historic buildings is phenomenally expensive
and defence plans, the architects engineers are really proud, like,
(31:57):
this is going to be really challenging, but we can
do it for a billion dollars. If you're willing to
pay us a billion dollars, we can add glass atriums
to these buildings. But this is where I think Congress
would say, no, these are public funds. You cannot use
them to build expensive glass atriums. Okay, you can repaint
your walls if you find asbestos in some stealed glass windows,
(32:18):
which by the way, they did, and it takes probably
five hundred thousand dollars to remove the asbestos from those
glass windows. Congress is okay, you can use five thousand
dollars to get rid of the last bits of asbesos
from the building that have been there for one hundred years.
The problem with the three billion is most of it
is for amenities that Americans would never dream of. And
(32:40):
that was what Senator Tim Scott said in the letter
to Powell.
Speaker 1 (32:43):
When you talk about amenities, I'm not sure how some
of these things for any normal American could be described
as an amenity. I mean, it's so over the top.
Speaker 2 (32:57):
I worked in that building for most of the twenty
years I was at the FED. There was a couple
of years I was across the street. In six months,
I was down the street while they were doing the renovation. Okay,
but it is a beautiful, spectacular building. It didn't need
glass atriums, it didn't have to have the two sides
and closed. The courtyards are now going to have skylights.
(33:18):
It'll be spectacular like a palace. But the documents of
the fence plans say is this will provide a place
of respite for building users, a place of respite. And
the irony of this, which is acute, is the Federal
Reserve building is right across the street from the National Mall.
When I was there, we would walk across the street
(33:41):
and walk around the Duck Pond, or we walk over
to the World War Two Memorial or even the Lincoln
Memorials only a few hundred yards away. And so do
you really have to have a glass atrium in the
courtyard of the building to provide respite for building users.
Speaker 1 (33:57):
You've got to cut down the arrogance of an institution
that thinks is totally out of control. I agree with
almost all your other recommendations about having a truly independent
Inspector General, having a regular audit, having all major expenditures
actually go through the Congress. This institution has to come
back to being an institution of the American people, not
(34:17):
an institution of a handful of elitists.
Speaker 2 (34:20):
Again, I want to just recommend here, because the FED
is complex, you need a Blue Ribbon commission on the governance.
It should be a board. It should be a commission
like the Supreme Court, the chief Justice is not always right.
It should be first among equals, and so it's not
that hard to fix. For example, Congress could change a
(34:42):
few words in the Federal Reserve Act to make the
staff report to the entire board, all seven of them.
There'd still be a chair who would moderate the meetings
and set the agenda, okay, but the staff would report
to all seven board members. It would get rid of
the monarchy, it would get rid of the autocracy. It
would make the chair first among equals. And then when
(35:03):
there were debates, like with the Supreme Court, we wouldn't
just see the same justice over and over and over again.
It would depend on which one's writing the opinion and
which ones are in the minority, which inventory That's the
way it should be at the Federal Reserve.
Speaker 1 (35:15):
Well, I want to thank you for joining me. We're
going to feature your latest policy brief. The Federal Reserve
should welcome the appointment it would have been an Inspector
General on our show page. I'm going to encourage everyone
to follow the work you're doing at Mertadis dot org
or by visiting your personal website at Dartmouth dot edu
slash eleven. This has been one of the more interesting
(35:38):
and fascinating podcast You really have mastered this and you,
frankly have my head spinning with ideas. Well.
Speaker 2 (35:46):
Great, let's talk again sometime, and I really appreciate your work.
Your podcast is important because it's moving around this legacy
media that's had this lock on public communications for many
decades and now finally the glasses broken and programs like
yours are helping the public to really understand these really
important issues. So thank you.
Speaker 1 (36:11):
Thank you to my guest Andrew Levin. You can get
a link to his policy brief the Federal Reserve should
welcome the appointment of an independent inspector in general on
our show page at newtworld dot com. New World is
produced by Ginglishtree sixty at iHeartMedia. Our executive producer is
Guernsey Sloan. Our researcher is Rachel Peterson. The artwork for
(36:32):
the show was created by Steve Penley. Special thanks to
the team of Ginglishtree sixty. If you've been enjoying Newsworld,
I hope you'll go to Apple Podcasts and both rate
us with five stars and give us a review so
others can learn what it's all about right now. Listeners
of news World can sign up for my three freeweekly
columns at ginglishtree sixty dot com slash newsletter. I'm Newt Gingrich.
(36:57):
This is news World.
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