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Suspicions About the Federal Reserve Spill Out in House Hearing

Courtesy of Pam Martens.

Fed Chair Janet Yellen Testifying on February 25, 2015 Before the House Financial Services Committee

 

Fed Chair Janet Yellen Testifying on February 25, 2015 Before the House Financial Services Committee

Fed Chairman Janet Yellen fielded questions last Wednesday before a combative House Financial Services Committee. Tempers flared, fingers stabbed the air, arms waved wildly as House reps expressed pent up frustrations with how the Federal Reserve is handling the economy. At times, Yellen answered curtly and at one point rolled her eyes at questioning from Congressman Scott Garrett (R-NJ) who insinuated that Yellen had politicized her office by meeting so frequently with President Obama and Treasury Secretary Jack Lew.

The anger and frustration were evident from both sides of the aisle. Congressman Michael Capuano, (D-MA), was incensed that the largest, most dangerous Wall Street banks are still being allowed to fail their living wills. Capuano read a portion of a statement from FDIC Vice Chair, Thomas Hoenig, which stated that these living wills “provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support.”

Capuano barked at Yellen “if they don’t meet your requirements at the third try, what you said is…something along the lines that you’d be upset.” Yellen responded that what she had said was “we will find them to be not credible if we do not see progress…” Capuano interrupted in frustration: “Would you break them up?” Yellen responded that the banks would have two years to show that they had made changes.

Visibly showing disgust at the answer, Capuano said: “So five years after Dodd-Frank, they still have potentially three years before there are any serious consequences to prove to you that they no longer offer a threat to the entire U.S. economic system.” Yellen responded that the Fed had put higher capital standards in place. Capuano said that these capital standards have been found insufficient by everyone who studies these matters “except the Fed.”

Congressman Brad Sherman (D-CA) asked Yellen about the fact that the New York Fed represents less than 20 million people in their district but has a permanent seat on the Federal Open Market Committee which sets monetary policy. He said the San Francisco Fed represents 65 million people – three times more than New York. He argued that New York isn’t three times more important than San Francisco and asked if Yellen would support a permanent seat on the Fed for the San Francisco Fed. Yellen said that would take Congressional action.

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