What do a Nobel Prize-winning economist and U.S. Sen. Bernie Sanders (I-VT) have in common?
They both want to reform the Federal Reserve.
Joseph Stiglitz, the 2001 winner of the Nobel Prize in economics and an economics professor at Columbia University, is one of nearly 20 of the nation's leading progressive economists and economic analysts who have agreed to advise Sanders on legislation designed to bring a major overhaul to the nation's central bank.
Other prominent names on this special advisory panel include: Robert Reich, secretary of labor under President Bill Clinton; economist James K. Galbraith; Jeffrey Sachs, a special adviser to United National Secretary-General Ban Ki-moon; and author William Greider, among others.
Sanders announced the panel last week, on the heels of a second critical report of the Fed issued by the U.S. Government Accountability Office and as "Occupy Wall Street" protests began to spread across the nation.
According to a GAO report issued last week, corporate affiliations of Fed directors with such banking and industry giants as General Electric, JP Morgan Chase, and Lehman Brothers pose “reputational risks” to the Federal Reserve System. Giving the banking industry the power to both elect and serve as Fed directors creates "an appearance of a conflict of interest," the report added.
The 108-page report found that at least 18 specific current and former Fed board members were affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis.
A July GAO report found that during the height of the financial crisis, the Federal Reserve loaned out roughly $16 trillion — that's trillion with a "T" — to large financial institutions, central banks around the world, and wealthy individuals. At the time, Sanders criticized the Feds' widespread lending — especially to foreign central banks — "without the specific approval of Congress."
"In my opinion, the Federal Reserve is representing the interests of Wall Street rather than the needs of ordinary Americans," Sanders told Seven Days. "We are now in a position to bring about real reform to the Fed."
Some of those reforms are likely to include broader representation by small businesses and labor groups on the regional Federal Reserve boards. In addition, Sanders said new legislation is needed to get the Fed to focus on not just monetary policy, but unemployment.
"We are going to be clear that the The Fed is supposed to be doing more to deal with the issue of unemployment, something that is already required by law, but which the Fed has not been aggressive at doing — not by any stretch of the imagination," said Sanders.
Sanders expects legislation to emerge from this advisory committee and his staff "sooner rather than later" and possibly within several weeks. To create the panel, Sanders said he simply picked up the phone and called economists and other economic thinkers he respects and admires.
"I was pleasantly surprised that they said yes," said Sanders. "We have brought together virtually every progressive-thinking economist in the country to bring true reform to the Fed."
Sanders has been one of the leading voices in Congress pushing for major reforms at the Federal Reserve. Another "reform the Fed" voice has been the libertarian-leaning presidential candidate Rep. Ron Paul (R-TX).
Late last year, Sanders helped to pass legislation that required two special audits of the Fed, though he came under criticism from Paul and others in the House who backed stronger legislation. Fed Chairman Ben Bernanke opposed Sanders' proposal.
"The Federal Reserve has been cloaked in secrecy for decades," said Sanders. "The challenge is to make the Fed more transparent and accountable and we're going to do just that."
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