Understanding Ownership of the Fed

A reader has been communicating with me about the ownership of the Fed. He or she points out that the President and the Congress have the right to appoint the chairman and board of governors of the Fed.  Therefore,  the member banks' subscription to Fed stock does not mean that they own the Fed.  Power, in this view, is the President's, Congress's and the public's.

This argument overlooks the implications of stock ownership.  By definition, ownership of stock in a corporation constitutes ownership of the corporation.  It is true that the President's appointment of the board of governors and the chairman modifies some implications. However, there is another point that is more important. The stock ownership creates a fiduciary relationship.  Any corporation must be operated in its owners' interests.  Therefore, calling the member banks' holdings in the Fed "stock" rather than "loans" or "subscription fees" suggests that the framers meant to vest the crucial aspect of ownership in the banks, namely, that the Fed should be operated in their interest and not the public interest.

Bankers work with trusts all the time.  The basic relationship of banks to their depositors is fiduciary. Hence, they instinctively understand what the reader has trouble accepting, that appointment of a trustee on behalf of a beneficiary does not change the beneficiary's underlying ownership. The appoint of a guardian for a minor orphan's assets does not change the orphan's owning the assets.  Likewise, the president's appointment of a Fed chairman does not change the fiduciary relationship the Fed bears to its stockholders, the commercial banks.

Recently, Congress voted down Ron Paul's bill that would have required public audits of the Fed. This is significant evidence that Congress and the public have never believed (to believe that two groups of knuckleheads have any beliefs at all on the subject) that the Fed serves the public interests.  What owner would refuse information about his assets?  One of the fundamental rules about trusts is that the trustee must disclose all relevant information. That Congress does not want the information means that Congress does not think it or the public would benefit from the information.  Hence, Congress and the public do not think that they are the Fed's beneficiaries.