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**MARCH 17, 2023**

Kuttner on TAP

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**** Powell on the Ropes

A prime casualty of the crisis set off by the failure of Silicon Valley
Bank could be Fed Chair Jay Powell-all too appropriately, and none too
soon.

Jay Powell has had great and pernicious influence in persuading his
colleagues to support his perverse tight-money policy. But Powell's
Achilles' heel turns out to be his indulgent stance on regulatory
policy, and the connection between the two Fed realms.

If Powell was going to sharply and repeatedly hike interest rates, he
needed to pay very close attention to how this would affect bank balance
sheets. Not only did he fail to do that; he was a prime mover behind the
serial regulatory weakenings that allowed fast-growing regional banks
like Silicon Valley Bank to speculate themselves into deep trouble.

Now the Fed is in high damage control mode-control of the damage to
the nation's banking system and to Powell's own rapidly declining
reputation and influence in his own house. Three of the six current Fed
governors are now Democrats appointed by President Biden-Michael Barr,
the vice chair for supervision; Lisa Cook; and Philip Jefferson.

Powell is desperately trying to keep control of the Fed's internal
investigation, to whitewash the Fed's blunders and his own role. The
other members of the Fed board should be less concerned about helping to
save Powell's neck and more about redeeming a badly failed
institution.

When the sainted Fed chair Paul Volcker lost his working majority on the
Fed Board of Governors in 1987, he resigned, at 59, and with several
years to go in his term. It could happen to Powell.

Paradoxically, if Biden had not moved Fed governor Lael Brainard to the
White House as director of the National Economic Council, that would
have left one more Fed governor who is very much a regulatory hawk.
Brainard opposed the Trump legislation to weaken standards for midsized
banks like SVB that Powell not only supported but went beyond.

But because of the current banking crisis, we are probably better off
having Brainard at the White House as a senior counterweight to Powell.
Unless the president had a crystal ball, this was not likely on
Biden's mind when he made the appointment, but it was providential.

We Can't Do This Without You
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The White House also will soon be nominating Brainard's successor.
Among the names prominently leaked is Janice Eberly. She is a former
aide to Tim Geithner, whose policies helped bring us the last financial
meltdown and prolonged the aftermath by giving priority to propping up
the biggest banks with no real penalties, rather than reviving the real
economy.

Eberly's name should be off the table. Instead, how about William
Spriggs, chief economist of the AFL-CIO and professor and former chair
of the Howard University Economics Department. (Spriggs also serves on
the

**Prospect**'s board of directors.)

Meanwhile, Elizabeth Warren is leading calls for a thorough
investigation of Powell. She has sent the beleaguered Fed chair a
scathing ten-page letter
<[link removed]>,
with 11 detailed questions. Among them:

* Will you commit to reimplementing the rules that you rolled back? If
so, what is your timeline?

* Have you reviewed the supervisory efforts of the [San Francisco] Fed?
Do you agree that failures in the supervisory process helped create the
conditions that ultimately resulted in the collapse of SVB and the
threat of contagion posed by that collapse?

* Do you believe the conflict of interest posed by former SVB CEO
Gregory Becker's role on the Board of Directors may have played a role
in the [San Francisco] Fed's supervision of SVB?

* Will you commit to full recusal from the Fed's internal review of
the regulation and supervision of SVB?

Powell has met his match. Don't expect him to cooperate. Let's see
whether other public officials have Warren's combination of deep
knowledge, principle, and gumption.

~ ROBERT KUTTNER

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Powell Blocked Mentions of Supervisory Failures From Bank Rescue
Statements
<[link removed]>
The Fed chair resisted mentioning supervision, regulation, or
accountability after the collapse of Silicon Valley Bank. His resistance
delayed the announcement. BY DAVID DAYEN

Bankers Being Greedy Morons Poses Climate and Financial Risk
<[link removed]>
When banks are too big to fail, their capacity for stupid behavior is
greatly increased. BY MAX MORAN

Labor Developments in the Rust Belt
<[link removed]>
Michigan is one step closer to repealing right to work; why the end of
two-tier wages at Caterpillar shows corporate America's immense power
over workers. BY JAROD FACUNDO

 

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