The first thing to know about the Federal Reserve Bank of Dallas is that you should get there a little early. Security is tight—the entrance to the parking lot alone employs a series of three gates, plus guards. To enter the building you have to get a visitor’s badge, which allows you and your bag to go through the metal detectors into the lobby, where you can exchange your first badge for another one. This badge allows you to proceed beyond the lobby, although you’re not exactly free to roam. The reason for all the security is that in the basement of the Dallas Fed there’s a vault the size of a five-story building, and sitting in that vault, under heavy protection, is the most staggering concentration of physical wealth in Texas: trolleys full of shrink-wrapped bundles of brand-new bills, piles and piles of old bills, stacks as far as the eye can see. The exact amount fluctuates, but on any given day, there are billions of dollars down there. And all of it’s in cash.
Take the elevator in the other direction and you’ll find floor after floor of the same types of workers you’d find at a commercial bank: managers and analysts and researchers and lawyers. But these men and women (more of the latter than you might expect) are part of the Federal Reserve System, so they have a public role: they produce research about the region, serve as our friendly local central bankers, and, as a group and along with the Fed’s board of governors in Washington, help make decisions about how much money the richest nation in the history of the world should have on hand.
The twelve regional banks of the Federal Reserve System, which was created by Congress in 1913, are actual banks, but since their customers are other banks, as opposed to people or businesses, they tend to be supersized. The Dallas Fed isn’t the biggest of these regional banks—that would be the New York Fed, naturally—but it is unusual, because of geography. It’s the only Fed bank with a district that’s basically just a single state, and since that state is Texas, the Dallas Fed has a long tradition of being a pain in the ass. (...)
The simplest way to explain what the Fed does is to say that it stabilizes the country’s money supply. This is done by managing currency, overseeing member banks, deciding the interest rates at which the government can borrow or lend money, and, when necessary, making the purchases or loans that private banks will not. To put it another way, the Federal Reserve often acts as a counterweight to looming problems in the private sector. If private players are getting too optimistic, racking up debt, and risking inflation, the Fed may move to raise interest rates, thus tightening the money supply. If, on the other hand, the private banks are too spooked to do much of anything, the Fed can lower interest rates to encourage lending or even act as a sort of substitute, spending money when no one else will.
This last activity has caused a fair amount of debate over the past five years. Since the financial crisis hit, the Fed has intervened several times to make large-scale asset purchases, a move known as quantitative easing. It works like this: If commercial banks have assets they can’t readily sell, they end up in a defensive posture, unwilling or unable to buy anything else. So the Fed buys up huge batches of securities, in the hopes of creating a ripple effect among the private banks, which would enable companies to get access to much-needed credit, restructure their liabilities, make new investments, and above all, put people back to work.
Most countries in the developed world have a central bank like our Federal Reserve. It’s a useful thing, but Americans have historically been torn about whether or not to have one. The bank’s weird, quasi-public nature means it has expansive powers and unusual independence; dissolving the Fed, or at least auditing it, is among the recurring demands of the tea party movement, although the idea attracts support from progressives too. Others support the system in general but frequently disagree with what the Fed is doing. (...)
As in any system, the trick is finding the right balance. When I asked him about the financial crisis, Fisher told me that by the fall of 2007, he was feeling seriously worried. “Mortgage-related markets were manic,” he said, and big banks like Bear Stearns and Merrill Lynch looked as if they were in trouble (both were sold in 2008). “I don’t think I got a full night’s sleep for eighteen months,” he recalled. Behind closed doors, the Fed was in a state of high alarm, and he would either be awakened by a middle-of-the-night call from one of his counterparts or be already lying awake, wondering if the actions he’d advised were the best ones.
When the crisis did blow open, Fisher’s public commentary was temperate. In October 2008 he gave a speech in Washington counseling calmness. Countries have weathered crises before, he said, and America would weather this one. In his view, the Fed had to resist providing undue comfort to foundering companies who had run into trouble through their own misconduct or ineptitude. To do so would create moral hazard, the risk of encouraging similarly bad behavior in the future. At the same time, Fisher argued that the Fed’s response should be muscular. (...)
“I think we did that well,” Fisher continued. “My dispute has been with what we did afterward.”
Take the elevator in the other direction and you’ll find floor after floor of the same types of workers you’d find at a commercial bank: managers and analysts and researchers and lawyers. But these men and women (more of the latter than you might expect) are part of the Federal Reserve System, so they have a public role: they produce research about the region, serve as our friendly local central bankers, and, as a group and along with the Fed’s board of governors in Washington, help make decisions about how much money the richest nation in the history of the world should have on hand.The twelve regional banks of the Federal Reserve System, which was created by Congress in 1913, are actual banks, but since their customers are other banks, as opposed to people or businesses, they tend to be supersized. The Dallas Fed isn’t the biggest of these regional banks—that would be the New York Fed, naturally—but it is unusual, because of geography. It’s the only Fed bank with a district that’s basically just a single state, and since that state is Texas, the Dallas Fed has a long tradition of being a pain in the ass. (...)
The simplest way to explain what the Fed does is to say that it stabilizes the country’s money supply. This is done by managing currency, overseeing member banks, deciding the interest rates at which the government can borrow or lend money, and, when necessary, making the purchases or loans that private banks will not. To put it another way, the Federal Reserve often acts as a counterweight to looming problems in the private sector. If private players are getting too optimistic, racking up debt, and risking inflation, the Fed may move to raise interest rates, thus tightening the money supply. If, on the other hand, the private banks are too spooked to do much of anything, the Fed can lower interest rates to encourage lending or even act as a sort of substitute, spending money when no one else will.
This last activity has caused a fair amount of debate over the past five years. Since the financial crisis hit, the Fed has intervened several times to make large-scale asset purchases, a move known as quantitative easing. It works like this: If commercial banks have assets they can’t readily sell, they end up in a defensive posture, unwilling or unable to buy anything else. So the Fed buys up huge batches of securities, in the hopes of creating a ripple effect among the private banks, which would enable companies to get access to much-needed credit, restructure their liabilities, make new investments, and above all, put people back to work.
Most countries in the developed world have a central bank like our Federal Reserve. It’s a useful thing, but Americans have historically been torn about whether or not to have one. The bank’s weird, quasi-public nature means it has expansive powers and unusual independence; dissolving the Fed, or at least auditing it, is among the recurring demands of the tea party movement, although the idea attracts support from progressives too. Others support the system in general but frequently disagree with what the Fed is doing. (...)
As in any system, the trick is finding the right balance. When I asked him about the financial crisis, Fisher told me that by the fall of 2007, he was feeling seriously worried. “Mortgage-related markets were manic,” he said, and big banks like Bear Stearns and Merrill Lynch looked as if they were in trouble (both were sold in 2008). “I don’t think I got a full night’s sleep for eighteen months,” he recalled. Behind closed doors, the Fed was in a state of high alarm, and he would either be awakened by a middle-of-the-night call from one of his counterparts or be already lying awake, wondering if the actions he’d advised were the best ones.
When the crisis did blow open, Fisher’s public commentary was temperate. In October 2008 he gave a speech in Washington counseling calmness. Countries have weathered crises before, he said, and America would weather this one. In his view, the Fed had to resist providing undue comfort to foundering companies who had run into trouble through their own misconduct or ineptitude. To do so would create moral hazard, the risk of encouraging similarly bad behavior in the future. At the same time, Fisher argued that the Fed’s response should be muscular. (...)
“I think we did that well,” Fisher continued. “My dispute has been with what we did afterward.”
by Erica Greider, Texas Monthly | Read more:
Image: Jeff Wilson
