America is a racial/gender quota society. It has been for half a century.
Any organization -- except for churches (so far) -- whose leadership does not reflect the racial and gender distribution is suspect. In fact, it may be in violation of federal law.
Well, it turns out that the Federal Reserve System does not reflect the racial makeup of the United States. It also does not reflect the 50-50 distribution of gender. Something must be done! That is the opinion of 11 U.S. Senators and 116 members of Congress -- all Democrats.
So, they got together to write a polite but forceful letter of protest to Janet Yellen. They said she needs to do something.
But what? And how? You see, our intrepid watchdogs of racial and gender diversity seem blissfully unaware that Dr. Yellen has no authority over the regional banks that make up the Federal Reserve System. She is a member of the Board of Governors. It is an agency of the U.S. government. Its website has the suffix .gov. But the regional banks have the suffix .org. You know -- as in "nonprofit." They are in no way under the authority of Ms. Yellen and the Board of Governors.
It really does appear that members of Congress are unaware of this. Well, most people are.
Instead of recommending to Ms. Yellen that she do something, the letter-signers should have sent their outraged letter to the EEOC: the Equal Employment Opportunities Commission. That is the watchdog agency that imposes negative sanctions on institutions that are in violation of its guidelines.
Why didn't they do that? Because they know who is in charge. It's not the EEOC. It's not the federal government. The FED is in charge.
Not on paper, of course. I mean operationally.
This is why our team of concerned Congresspeople were so, so -- humble.
They began:
We write to thank you for your strong leadership at the Federal Reserve throughout your historic tenure. Beginning with your first public speech in Chicago, you have placed crucial renewed emphasis on the importance of building a full employment economy, which will raise Americans' wages and combat inequality. And you have displayed an appreciation for the fact that, as you have said, "there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives." Over the past two years, thanks in no small part to your leadership and that of President Obama, our economy has added more than 5.5 million new private-sector jobs.
All very polite. They doff their collective caps to her and, of course, President Obama.
Don't forget President Obama. He appointed some of them. They serve 14-year terms. Once appointed, they cannot be removed by the next President. That means that they are beyond any political influence. That's the democratic way.
But then our politicians get to the point.
However, despite these gains, we remain deeply concerned that the Federal Reserve has not yet fulfilled its statutory and moral obligation to ensure that its leadership reflects the composition of our diverse nation in terms of gender, race and ethnicity, economic background, and occupation, and we call on you to take steps to promptly begin to remedy this issue.
THE FED'S VIEWPOINT
Prompt action, yes. That is what independent bureaucracies are known for, all over the world.
Then there is the question of action. What action? They never said . . . in three pages.
But she must do something, and promptly!
In 1977, Congress responded to concerns that monetary policy was being set by a body that fell short of reflecting the diverse makeup of the United States by passing a law that requires the Federal Reserve to "represent the public, without discrimination on the basis of race, creed, color, sex, or national origin, and with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor and consumers." Nearly 40 years later, the leadership across the Federal Reserve System remains overwhelmingly and disproportionately white and male, while major financial institutions and corporations are overrepresented in senior roles.
What do these people expect? I mean, they are talking a mere four decades. I would call that "all deliberate speed." For bureaucracies, this is a near-breakneck pace.
According to a study by the Center for Popular Democracy released in February 2016, 83 percent of Federal Reserve head office board members are white, and men occupy nearly three-fourths of all regional bank directorships.
What kind of standards are dominant over at the Center for Popular Democracy? How popular are these standards?
The lack of public representation on regional Banks' boards is even more distressing in light of the lack of diversity among regional Bank presidents and the resulting lack of diversity on the Federal Open Market Committee (FOMC). Currently, 92 percent of regional Bank presidents are white, and not a single president is either African American or Latino. Moreover, at present 100 percent of voting FOMC participants are white, while 83 percent of regional Bank presidents and 60 percent of voting FOMC members are men.
The critics do not seem to grasp the fact that regional Federal Reserve Bank presidents in the 12 regions are elected by boards of directors of regional commercial banks. This has been true ever since 1914. Apparently, word about this has not yet reached Congress.
Now, if we look at the racial makeup of commercial banks in the United States, we find that they are not usually Blacks and Latinos.
The Board of Governors of the Federal Reserve has nothing to do with this.
In addition to racial and gender disparities, we are also concerned with the persistent lack of occupational diversity. Despite the important role they serve in reflecting the interests of working families, only 11 percent of the Federal Reserve's regional Bank directors come from community, labor, or academic organizations. By contrast, 39 percent of all regional directors represent financial institutions, and 47 percent represent firms in commerce, industry, and services.
This may have something to do with the fact that only bankers vote to elect regional Bank members. They tend to vote for people with backgrounds in finance, commerce, and industry. These people rarely are employed as (say) roofers or (say) hairdressers.
Given the critical linkage between monetary policy and the experiences of hardworking Americans, the importance of ensuring that such positions are filled by persons that reflect and represent the interests of our diverse country, cannot be understated. When the voices of women, African-Americans, Latinos, Asian Pacific Americans, and representatives of consumers and labor are excluded from key discussions, their interests are too often neglected.
THE COLOR OF MONEY
It seems that members of Congress believe that monetary theory is governed by economic interests. Monetary theory should reflect diversity. Monetary theory has racial diversity, and regional diversity, and gender diversity. When these elements are not kept in statistical balance regionally, monetary theory suffers.
Then monetary policy suffers.
They did not mention that the only policy tool the FOMC has is the rate of interest paid to commercial banks by the Federal Reserve for deposits held by the FED as excess reserves. This has been true ever since October 6, 2008, when the FED began paying interest on excess reserves.
This money is not reinvested. It stays locked up in the FED's digital vault. So, money paid out must come from earnings by the FED. So, the money paid to commercial banks for excess reserves is not returned to the Treasury at the beginning of the next calendar year. This increases the federal deficit for that fiscal year.
So, the theoretical question is this: What rate of interest paid on excess reserves is appropriate for a regional FED Bank's regional makeup -- race, gender, and occupations?
Next, what is the appropriate formula for balancing these regional rates at the national level?
Democrats in Congress seem oblivious to all this. That is why they wrote this:
For example, it is widely accepted that employment discrimination against women and minorities decreases as our economy approaches full employment. The data is unambiguous: even when comparing workers with the same levels of education, African-American workers face higher unemployment rates and are paid less than their white counterparts, women make less than their male counterparts, and women of color are particularly disadvantaged. A recent study by the Economic Policy Institute confirmed the importance of full employment for African-Americans, demonstrating that for every 91 percent reduction in unemployment for whites, black unemployment drops 1.7 percent.
THE DEMOCRATS' FINAL WORD
The Board of Governors must do something about all this.
By fostering genuine full employment, the Federal Reserve can help combat discrimination and dramatically reduce the disproportionate unemployment faced by minority populations. Unfortunately, it seems that this perspective is missing from FOMC deliberations.
Let's not beat around the bush. It's all about race.
Reflecting on his experience on the FOMC in a recent blog post, former Minneapolis Federal Reserve President Narayana Kocherlakota wrote: "There is one key source of economic difference in American life that is likely underemphasized in FOMC deliberations: race."
This should be shouted from the housetops, if anyone knew how to pronounce "Kocherlakota." (Does kocher mean "chief"?)
He reviewed the most recent full year of FOMC meeting transcripts available (2010), and found that "there was no reference in the meetings to labor market conditions among African-Americans," although the unemployment rate for African-Americans never dropped below 15.5 percent during that year.
So, the FED is not pursuing the policies of Abraham Lincoln (D-Illinois).
It is unacceptable that discussion of the job market for these populations would be an afterthought, or worse, ignored entirely, and we are concerned that the lack of balanced representation may be a significant cause of this oversight.
Unacceptable, madam! There is not one word in the minutes of the FOMC about the appropriate rate for excess reserves for people of color. Not one!
We are grateful that you pledged to consider African-Americans for future positions as regional Bank presidents during your recent Humphrey-Hawkins testimony before Congress, and appreciate your concern that no African-American has led a regional Bank to date. While some recent progress has been made, the Federal Reserve still has considerable work to do in order to comply with both the letter and spirit of the requirements of the Federal Reserve Act that seek to ensure fairness in the representation within the leadership of the Federal Reserve.
So, get to it, Dr. Yellen! You must Take Immediate Action.
Do Something! Soon!
Despite the importance of this decision, there appears to have been no public consultation, and limited transparency regarding the metrics and criteria used to evaluate the presidents' performance, or in the decision to reappoint them. As the Board of Governors embarks on its search for regional Bank directors to serve beginning in 2017, and as you consider future regional president vacancies, we urge you to engage in an inclusive process to consider candidates from a diverse set of backgrounds, including a greater number of African-Americans, Latinos, Asian Pacific Americans, women, and individuals from labor, consumer, and community organizations.
Based on the fact that you have nothing to say about the decisions of regional commercial bankers as to who should be elected to regional FED Banks, you owe it to America -- to the memory of Mr. Lincoln -- to Do Something.
Soon.
Thank you for your continued pursuit of these vital goals.
You can read their letter here.
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