CPD IN THE NEWS

Since late summer, Toys R Us workers have been pressuring pension funds to in turn push a group of hedge firms that owned the retailer’s secured debt in a bid to get the remaining money they say is owed to them...The groups that organized the Toys R Us workers — Organization United for Respect, along with Private Equity Stakeholder Project and the Center for Popular Democracy — say that the hardship fund is being structured to allow the other firms to contribute, paving the way for Solus, Vornado and others to contribute. KKR and Bain said the fund was established in response to the “extraordinary set of circumstances” that led to Toys R Us being shuttered.

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Truthout - March 2, 2015, by Dean Baker - There is an enormous amount of political debate over various pieces of legislation that are supposed to be massive job killers. For example, Republicans lambasted President Obama’s increase in taxes on the wealthy back in 2013 as a job killer. They endlessly have condemned the Affordable Care Act as a jobs killer. The same is true of proposals to raise the minimum wage.

While there is great concern in Washington over these and other imaginary job killers, the Federal Reserve Board is openly mapping out an actual job killing strategy and drawing almost no attention at all for it. The Fed’s job killing strategy centers on its plan to start raising interest rates, which is generally expected to begin at some point this year.

The Fed’s plans to raise interest rates are rarely spoken of as hurting employment, but job-killing is really at the center of the story. The rationale for raising interest rates is that inflation could begin to pick up and start to exceed the Fed’s current 2.0 percent target, if the Fed doesn’t slow the economy with higher interest rates.

Higher interest rates slow the economy by discouraging people from borrowing to buy homes or cars. They will also have some effect in discouraging businesses from investing. With reduced demand from these sectors, businesses will hire fewer workers. This will weaken the labor market, which means workers have less bargaining power. If workers have less bargaining power, they will be less well-situated to get pay increases. And if wages are not rising there will be less inflationary pressure in the economy.

The potential impact of Fed rate hikes on jobs is large. Suppose the Fed raises interest rates enough to shave 0.2 percentage points off the growth rate, say pushing growth for the year down from 2.4 percent to 2.2 percent. If we assume employment growth drops roughly in proportion to GDP growth, this would imply a reduction in the rate of job growth of almost 10 percent. If the economy would have otherwise created 2.4 million jobs over the course of the year, the Fed’s rate hikes would have cost the economy more than 200,000 jobs in this scenario.

For comparison purposes, we are having a big fight over the Keystone pipeline. The proponents of the pipeline point to the jobs created by building a pipeline as an important justification, even if the oil being pumped through the pipeline may cause enormous damage to the environment. According to the State Department’s analysis, building the pipeline would create 21,000 for two years. This pipeline related jobs gain has been widely touted in the media and is supposed to make it difficult for many members of Congress to go along with President Obama in opposing Keystone.

Yet, the Fed can easily destroy ten times as many jobs with a set of interest rate hikes this year with its actions passing largely unnoticed. In fact, the impact of Fed interest rate hikes on jobs can easily be far larger than this 200,000 number. If the Fed decides that the unemployment rate should not fall below a certain level (5.4 percent is a number is often used), then it could be costing the economy millions of jobs if the economy could actually sustain a considerably lower level of unemployment as it did in the late 1990s.

To be clear, Federal Reserve Board Chair Janet Yellen and her colleagues on the Fed’s Open Market Committee (FOMC) that determines interest rates are not evil people sitting around figuring out how to ruin the lives of American workers. The Fed has a legal mandate to control inflation, in addition to its mandate to sustain high levels of unemployment. If they raise interest rates it will be because they fear inflationary pressures will build if they let the economy continue to grow and unemployment to fall.

But this is inevitably a judgment call. The call is based on both their assessment of the risk of inflation and also the relative harm from higher rates of inflation as opposed to higher rates of unemployment. It is likely that the members of the FOMC, who largely come from the financial industry, are much more concerned about inflation than the population as a whole. They are also likely to be less concerned about unemployment. These are people who tend to read about unemployment in the data, not to see it themselves or among their friends and family members.

This is why it is important that the public be paying attention to the Fed’s interest rate policies and let them know how they feel about raising interest rates to kill jobs. The Center for Popular Democracy has organized an impressive grassroots campaign around the Fed’s interest rate policies. Those who don’t want to see the government deliberately trying to kill jobs might want to join in.Source

In December 2012, a new Federal Reserve governor and unseasoned monetary policymaker, Jerome Powell, told his colleagues that the risks of continued stimulus likely outweighed the benefits. Vice Chair Janet Yellen, even then one of the most experienced policymakers in the Fed’s 104-year history, acknowledged the concerns but pushed back forcefully. She argued that “slow progress in moving the economy back toward full employment will not only impose immense costs on American families and the economy at large, but may also do permanent damage to the labor market.” In other words, if we don’t take risks now to get more Americans employed, the country might lose the opportunity to ever fully recover from the Great Recession. She reminded her colleagues of the promise they had made: “We communicated that we will at least keep refilling the punch bowl until the guests have all arrived, and will not remove it prematurely before the party is well under way.”

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Hillary Clinton is taking on the United States Federal Reserve System, but in a wonky, bottom's-up way that shows her understanding of a complex and widely misunderstood organization. This is not "End the Fed" or even "audit the Fed" — she wants to rebuild it from its fundamentals at the regional level.

To paraphrase Mitt Romney, the Federal Reserve is people, my friend. Hillary Clinton's recent proposal to change the roster of Fed officials who ultimately make monetary policy and regulatory decisions might be the most effective Fed-reform idea since the financial crisis. Generally, the public pays attention to little more than the face of the organization — the Fed's chairperson, currently Janet Yellen — who announces and explains the Fed's decisions. But beneath Yellen functions an intricate and influential bureaucracy that's dominated by interests from the financial sector, the vast majority of them white men, and may well be blind to the reality of a vast majority of Americans.

The Federal Reserve was set up in 1917, in the wake of a financial crisis, as a private national bank that could serve as lender of last resort to other banks. If a bank needed money to make good on deposits, it could go to the Fed for a short-term loan. It was, since its inception, a bankers' institution, run for banks, by banks. But its role has clearly evolved as credit markets have developed and as the Fed's mandate was changed to pursue price stability (low inflation) and full employment at the same time, while helping to regulate the sector for which it also serves as lender.

As the Fed's mission has expanded, its governance has not. The Fed is run by a seven-member board in Washington, D.C., and a dozen regional bank presidents based in financial centers throughout the country (New York, St. Louis, Kansas City and Cleveland, among others). While the crew in D.C. is selected by the president and vetted by Congress, the regional bank presidents are chosen by the financial industry and tend to be either bankers or career Fed employees. Of the 12 bank presidents, two are women and only one is not white.

New York's regional president is Willian C. Dudley, previously a Goldman Sachs managing director. Robert S. Kaplan of Dallas was a former vice chairman at Goldman. Neel Kashkari, a known financial reformer, is nonetheless a former employee of PIMCO, one of the world's largest asset managers and a subsidiary of German financial behemoth Allianz. Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta is a former Citigroup executive.

Clinton's proposal would remove bankers from the regional boards of directors. Those boards choose the regional presidents and generate most of the information and perspective that the Federal Reserve governors use to set monetary policy. Clinton clearly understands how the Fed functions. Donald Trump has said he would not reappoint Janet Yellen as chair. Fine. But appointing the Fed chair is merely the most high-profile action a president can take in this regard. It doesn't change the system, and the Fed is known as the Federal Reserve System for a reason.

This is Clinton at her best – she knows how the government works. The region Federal Reserve boards do not get a lot of press. Most people do not know that they are staffed with chief executives from Morgan Stanley, Comerica, KeyCorp and private-equity firms like Silver Lake, and if they do know it, they do not understand its importance.

The Fed is generally a topic of political bluster. "I appointed him and he disappointed me," complained George H.W. Bush about Alan Greenspan, when the Fed chair refused to cut interest rates in the face of a recession that probably cost Bush his re-election in 1992. Before that, Ronald Reagan had to endure Chairman Paul Volcker raising interest rates so high in an effort to combat inflation that out-of-work construction workers were mailing bricks and wooden beams to the Fed in protest.

The idea that the Fed often acts contrary to the interests of working people is not new, but aside from requiring the Fed to pursue full employment in addition to price stability in 1977, presidents who are unhappy with the Fed have done little more than complain. Even after Greenspan disappointed Bush, Bill Clinton reappointed him to the post. When Greenspan retired, Ben Bernanke, an intellectual heir, took the helm. When he retired, Yellen, also an intellectual heir, took over. The power to appoint the Fed chair and governors is not, clearly, the power to change things.

Clinton is digging deeper. Changing the roster of the regional boards will hopefully help more accurate economic information trickle up to the chairperson and the federal governors. Perhaps, even, a labor representative or somebody with closer ties to the common American experience could become a regional bank president.

In her quiet way, tinkering with the inner workings of a near-century old quasi-government institution that is arcane to most, Clinton has a chance to achieve radical, lasting financial reform.

BY MICHAEL MAIELLO

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