Snapshot: The Federal Reserve System

The Federal Reserve System is now in the news, not least divergent views within the system. The New York Times, this morning, for instance, brings a profile of Thomas M. Hoenig, the soon-to-retire president of the Federal Reserve Bank of Kansas City. I’d read about Mr. Hoenig’s conservative and sensible views quite some time ago for the first time; they were unheeded outside and inside the Fed. He predicted the troubles we’re now seeing and has long been an advocate of severe management of risk. How? He advocates denying risk-taking banks government backing of their deposits. He also wants to reduce their access to emergency loans. Such is our celebrity culture, however, meaning so short our attention span, that only the Chairman of the Fed has any visibility in the media.

The Fed is rather an extensive and diverse sort of institution. Here a snapshot of its geographical extent, courtesy of this site maitained by the Federal Reserve Board:

The star emblem over Washington, DC shows the location of the seven-member Board of Governors. These are political appointees subject to Senate confirmation. The President appoints the Chair and Vice Chair from among sitting governors. They all have 14-year terms.

The Fed has 12 banks, marked on the map by black bullets. Five of the 12 bank presidents, alongside the seven members of the Board, form the Federal Open Market Committee (FOMC) where all the monetary policy is hammered out and decided by majority vote. One of the presidents, the president of the New York Fed, is a permanent member of the FOMC. That's the position Secretary Geithner held as his last job. The other four on that committee serve rotating one-year terms. Mr. Hoenig is not on the FOMC at present. Despite this limitation on voting, all presidents attend committee meetings and take part in the discussions.

Nine of the banks also have branches, marked by blue triangles on the map. The cities, shown by the district to which they belong, are these:

•   4 (Cleveland):  Cincinnati, Pittsburgh
•   5 (Richmond):  Baltimore, Charlotte
•   6 (Atlanta): Birmingham, Jacksonville, Miami, Nashville, New Orleans
•   7 (Chicago): Detroit (alas, we’re just a branch around here)
•   8 (St. Louis): Little Rock, Louisville, Memphis
•   9 (Minneapolis): Helena
• 10 (Kansas City): Denver, Oklahoma City, Omaha
• 11 (Dallas): El Paso, Houston, San Antonio
• 12 (San Francisco): Los Angeles, Portland, Salt Lake City, Seattle

I’m fond of the Fed, in a general sort of way. It points the way to rational governance in this high-tech, extremely complex age. The very fact that the Fed has problems getting its policies right—despite being well structured to do so—underlines our problems in other regions of governance where the structures are much more influenced by passions, ideology, and the new kind of bribery we call campaign contributions.

Years ago I did a job for the Minneapolis Fed. I invented, designed, and then programmed a game for the Apple computer. The game simulated the behavior of a central bank in the guise of a science fiction adventure called Return to Fraxla. Oh, the memories... The game was intended as an educational product to be distributed to schools—part of the Fed’s unfailing, and also always anxious efforts to reach out and to connect to a public that has MAJOR difficulties understanding this bastion of arcane mystery. One character in my Fraxla fiction was a little robot, QT. I had him playing the guitar, too, and right good music came out of the Apple II when you played the game...