Governance of the Federal Reserve

Dr. Sankarshan Acharya
Founder, Pro-Prosperity.Com and Citizens for Development

February 19, 2015. Updated February 21, 2015

This is an updated version of a memo submitted to President Barack Obama and Senators Richard Shelby, Rand Paul and Elizabeth Warren on February 19, 2015.

How should the Federal Reserve (Fed) be governed?

The Fed should be governed by unanimously agreeable wisdom that guarantees fundamental fairness (constitutionality), efficiency of the economy (to perpetually enhance competitiveness) and stability (to preclude social chaos). 

How has the Federal Reserve (Fed) been governed since its inception in 1913?

The Robber Barons (13 largest banks) surviving the banking panics, which started in 1907 and destroyed the economy in 6 years, foisted the Federal Reserve Act of 1913 to create a new central bank – Federal Reserve – that would print money only for these banks whenever they needed to preclude their insolvency.  The Fed has been operating directly and indirectly at the behest of these mega banks (who are members of Clearing House LLC) as per FRA-1913, even for lending to smaller banks or non-banks.

Here is a stark paraphrasing of the current system of governance of the Fed:  A few big boys (Robber Barons) are allowed to beat up people (to collect their hard-earned wealth surreptitiously) with their large sticks (Acts of Congress) and whenever their sticks break, the cops (Government, Regulators and embedded Media) arrive at the scene to tell the beaten up people that the big boys are very important for well-being of people and that still bigger sticks (more free money and Dodd-Frank Act to make them systemically too important to be closed) be given to the failed big boys so that they continue beating up people to loot private wealth with impunity. The current system of governance of the Federal Reserve has been proved to be unconstitutional, inefficient and unstable.

This is what one of my students has written to me about the current system of governance:

“Hello Professor Acharya,

I agree with the “unanimously acceptable philosophy of governance for coexistence: for rulers to not facilitate usurpation of public and private wealth, even surreptitiously, through any rule, act, policy or procedure” that you point out. It’s hard to believe that despite this philosophy being unanimously acceptable, this is not how we live. It angers me that laws can be passed to so that a few can take from many and share the takings with those who pass the laws allowing the usurpation. You mention that the ability to make such laws is due to the founding fathers “not explicitly proscribing passage of laws for surreptitious usurpation of public and private wealth.” The lawmakers benefit from the takings that are shared with them so why isn’t this a kind of corruption? I see this as indirect corruption and I would think it would stop lawmakers from passing these laws. I strongly believe that something should be done to prevent this surreptitious usurpation of wealth. I believe that it is greed on the part of those that are taking the money from the people that prevent the truth from being found out and discredit your work. I do not like that the government lies to the people, as your neighbor had suggested that your findings reach every American household, I believe more people should know about your work. If more people knew what is occurring things could really change.

Hopefully what occurred in India can occur in other countries where the surreptitious usurpation of wealth is a problem and there can be a new beginning for the people who have had their wealth unjustly taken.

Best Regards,”

The rest of the analysis is available and updated at, which is the basis of the above feedback.

Updated: February 21, 2015 (Cause of Banking Panics in 1907 and Market Panics in 2007 leading to crash in 2008).

The Federal Reserve and Federal Deposit Insurance Corporation did not exist to be blamed for the 1907 banking panics. The Treasury Department, the sole monitor of private banks before 1907, could not avert the banking panics.

Adding the Fed and FDIC could not avert the 2008 financial catastrophe. The 2008 financial catastrophe was worse than the 1907 panics (as correctly stated by the Fed) because it involved a run in $3.5 trillion of uninsured money market funds and $7.8 trillion of uninsured bank debt.

The source of panic in 1907 as well as in 2007-2008 was unwarranted loss to investors due to surreptitious usurpation of their wealth kept under the custody of private banks.

Ihe Treasury Department has operated at the behest of mega private banks. The Fed and FDIC created later as well as the Treasury Department have been invariably blinkered about, if not complicit in, surreptitious usurpation of private wealth under the rubric of "free self-disciplined markets."

Furthermore, the Fed, FDIC, Treasury and mega banks have been been guided by the established experts in the academy of economics and finance. They all failed and their failure caused the manmade (avoidable) financial crisis of 2008, according to the findings of the Financial Crisis Inquiry Commission Report release in 2011.

The failure of established expertise/doctrine/punditry has caused trillions of dollars of loss in hard earned private wealth and wiped out millions of good jobs. Such gargantuan loss obviously calls for a thorough exorcise of the failed expertise/doctrine/punditry that has afflicted the US economy thus far.

It is time that the economy and institutions are henceforth governed by unanimously aggreable principles.

Founder, Citizens for Development & Pro-Prosperity.Com
Director, Research Center on Finance and Governance