What is The Fed and is it good or bad?

"The Fed" is short for Federal Reserve, which is a collection of 12 banks and an oversight committee that studies and implements policies regarding money, lending, and interest rates. The Federal Reserve was created in 1913, primarily as a reaction to earlier financial panics, instable banking institutions, and a general mistrust of banks by the American public.

The Fed operates independently, meaning its decisions don't have to be approved by the President or anyone else, but Congress oversees the Fed and periodically reviews the Fed's actions.

The Fed is managed by a government agency called the Board of Governors, seven members who are all appointed by the president and confirmed by the Senate, and who serve 14-year terms. The board is led by a chairman, who is also appointed by the president. The current chair is Ben Bernanke, who replaced Alan Greenspan on February 1, 2006. Greenspan had been the chairman since 1987.

The Board of Governors oversees the 12 Federal Reserve Banks, which are located in major cities around the country. These banks are the "banks' banks," loaning and transferring money, and performing other services pretty much like your bank does for you. Additionally, these 12 banks are the only banks that can perform financial services (such as lending money) for the U.S. government.

When most people think if The Fed, however, they think of the policy-making authority of the Board, who regulates and supervises the activities of the rest of the country's banks, making sure that they are acting responsibly and with the public's interest in mind. In short, it's The Fed's job to make sure that banks are setting fair interest rates, are not extending credit where it can't be repaid, and are operating in ways that will keep the American economy strong and growing.

Through its history, the Federal Reserve has received various criticisms. In the early 1900s, many Americans believed that The Fed was too focused on New York City's finances while being out of touch with reality regarding the financial well-being of America's working class. We heard this criticism again during the election and first year of President Obama's administration, as various people claimed that The Fed works for "Wall Street but not Main Street."

Others contend that the Federal Reserve acts in secrecy (or without transparency) and that too many of its assets, liabilities, and studies are not published, so no one really knows if The Fed is being upfront with the American people or not. Some people accuse The Fed of exaggerating or outright falsifying information regarding the country's financial stability. Yet another criticism alleges that The Fed, while supposedly independent, is in cahoots with the president or other influential politicians to influence policy or advance various political agendas.

The most recent criticism of The Fed was that the policies of credit expansion and low interest rates that Alan Greenspan adhered to directly led to the economic downturn, unemployment, and housing crises of 2008 and 2009.

But despite all these criticisms, I'm not sure how to answer your question about The Fed being "good," or "bad." Few things are so black and white, and while it's clear that The Fed isn't perfect, I'm also not sure we'd want banks to be allowed to set their own rules. From bank to bank, interest rates could be all over the map, as might rules for what you can and can't do with your own money, and consumers would have no real guarantee that their investments were even secure. Despite its shortcomings, I think we want The Fed doing its job.