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The DOJ Goes after Big Banks - but why not the Fed?

I don’t often quote scripture in service of a point, but when I heard that the Justice Department is pursuing legal action against many of the world’s largest banks, charging them with illegal currency manipulation, I couldn’t help but think about this line from Matthew.:

“Why do you look at the speck of sawdust in your brother's eye and pay no attention to the plank in your own eye?” - Matthew 7:3

Prosecutors are going after Deutsche Bank, Citigroup, JPMorgan Chase, Barclays, and UBS for the charge of colluding to manipulate the price of foreign currencies, a charge to which most of the offenders are expected to plead guilty.

Tellingly, the DOJ is not taking on the chief executives at the banks, but is rather confining its efforts to lower level traders, ensuring that the prosecutions will be only token ones, having no lasting effect on these gargantuan institutions. Far be it from the government to actually risk angering one of its biggest allies - Wall Street - but such nominal action will ensure that the enduring myth that government and big business work against one another, instead of in collusion, will not die anytime soon.

Now, I have no particular sympathy for banks or bankers. The cronyist practices of the world’s largest financial institutions play a key role in nearly every business cycle contraction, after which we, the taxpayers, are expected to bail out the very people who were responsible for the crash. Few business sectors leech off the federal government to the same extent that banks do, and I’m sure that whatever treatment they get from the Justice Department will be well-deserved.

However, this case of what is essentially a show trial reveals the depths of government hypocrisy. If currency manipulation is indeed something we should be worried about, then why do we continually give a free pass to one of the most egregious offenders in that regard: the Federal Reserve Bank of the United States?

For over a hundred years, the Federal Reserve has manipulated our own currency in misguided attempts to “stabilize” the economy using faulty Keynesian reasoning. The results, of course, have been anything but stable, with illusory credit expansions resulting in too-low interest rates, inflation, and a misallocation of resources that feeds the boom and bust cycles so damaging to our economy.

The Fed, as an independent agency, operates with near absolute discretion and secrecy, and to this day has never been fully audited.

Americans are rightly suspicious of big banks and the power they wield, but no bank is bigger and more powerful than the Federal Reserve, and it is simply unacceptable to allow such an institution to continue to manipulate our currency unmonitored, unchecked, and unaccountable to anyone.

Recently, the House of Representatives voted overwhelmingly to audit the Fed, but Harry Reid has so far refused to bring it up for a vote in the Senate. While the DOJ is going after private sector banks, it’s fundamentally wrong to fail to apply the same set of standards to America’s own central bank.

It’s time to audit the Fed today.