Summers: Sanders right on Wall Street influence at Fed

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Sen. Bernie SandersBernie SandersAnti-trade senators say chamber would be crazy to pass TPP Vulnerable NH Republican ties reelection bid to Trump Overnight Finance: Congress poised to avoid shutdown | Yellen defends Fed from Trump | Why Obama needs PhRMA on trade MORE (I-Vt.) is right when he says the current setup of the Federal Reserve is overly influenced by the banking industry, according to one of President Obama’s former top economic advisers.

Larry Summers, who once advised Obama on economic matters and was a potential candidate to head the central bank, wrote Tuesday that Sanders’s plan to overhaul the Fed had plenty of good ideas. But he warned that Fed critics on the left like Sanders could be lending ammunition to the large number of conservatives that want to change the Fed to their liking.

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“I think that Sanders is right in his central point that financial policy is overly influenced by financial interests to its detriment and that it is essential that this be repaired,” he wrote in The Washington Post. “At the same time, reform requires careful reflection if it is not to be counterproductive.”

Earlier this month, Sanders wrote an op-ed in The New York Times calling for structural changes to the Fed. He argued that the Fed’s recent move to raise rates, which he criticized as premature and harmful to average Americans, was a sign the Fed was too heavily influenced by bankers.

He called for a host of changes to make it tougher for the banking industry to find a foothold in the Fed and to hand more power to policymakers in filling out Fed positions normally chosen by bankers.

Currently, governors of the Fed are nominated by the president and confirmed by the Senate, but the heads of the 12 regional Fed banks are chosen by its board.

Summers noted that while technically those boards are divided up into three portions — banking members, nonbanking members and public interest members — banks have an outsized presence.

For example, in 2008, a member of the Goldman Sachs board was a “public interest” board member at the New York Fed, an arrangement Summers called “indefensible.”

Summers questioned why bankers have any tangible role at the Fed, when their counsel could be provided via less powerful advisory boards.

But Summers also questioned Sanders’s call to make all top Fed positions subject to confirmation by the Senate. He argued exposing all those spots to the “dysfunctionalities” of the Senate confirmation process could be harmful.

Summers also split with Sanders on his call to have transcripts of private Fed meetings be made public after just six months, instead of the current five years.

He noted that deliberations inside the Pentagon and among Supreme Court justices are never made public, so why push the Fed for even more transparency?

And Summers unsurprisingly splits with Sanders’s call to restore Glass-Steagall, a former banking law that created a firewall between traditional and investment banking. Summers oversaw the repeal of that law under Clinton.