Something resembling the alignment of all of the planets has occurred. The New York Times, Washington Post, and the Wall Street Journal all have editorials opposing the firing of Lisa Cook as a governor of the Federal Reserve.
New York Times, “Where’s Your Evidence, Mr. President?”
President Trump’s attempt to fire the Federal Reserve governor Lisa Cook is a grab for power in defiance of the nation’s laws, and if it succeeds, it will be to the detriment of the nation’s interests.
When Congress created the Fed in 1913, it gave the president the power to appoint the central bank’s governors, but it did not grant the power to remove them at will. Mr. Trump does not appear to regard that law as a binding constraint. He has made clear that he wants to replace the Fed’s leaders because they have resisted his demands to lower interest rates. In pursuit of this goal, he now says he is firing Ms. Cook because of “potentially criminal” behavior.
The law does allow the president to remove Fed governors “for cause,” and Mr. Trump has not presented any evidence of wrongdoing by Ms. Cook, an economist whom President Joe Biden appointed to the job three years ago. Mr. Trump has asserted that she “may have made false statements on one or more mortgage agreements.” We have two words for the president: Prove it.
Washington Post, “Here are the consequences of a president politicizing the Fed”
It’s not hard to find mistakes in the Federal Reserve’s recent history, but Donald Trump’s latest attempt to erode the institution’s independence is dangerous. The president wants lower interest rates, but any benefits coming from that would probably be outweighed by supercharged inflation and the economic hangover that comes with it.
On Monday night, Trump announced that he would try to fire Fed governor Lisa Cook, whose term otherwise expires in 2038. He cited an unproven allegation of mortgage fraud that one of his appointees dug up and broadcast on social media, but Cook denies wrongdoing, and her attorney says she will “take whatever actions are needed” to stay on the job.
That fight could reach the Supreme Court. The conservative majority has been friendly to the idea that the president can fire executive branch employees at will. Yet the Fed, the justices wrote in May, is “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”
Wall Street Journal, “What if Trump Runs the Federal Reserve?”
President Trump has long wanted to control the Federal Reserve, and on Monday night he made his power play by firing Fed Governor Lisa Cook. A central bank with even a semblance of independence may be the casualty.
Mr. Trump has resisted his itch to fire Fed Chair Jerome Powell on the savvy advice that he could rattle markets and trigger an extended court battle. But Ms. Cook said Tuesday she’ll challenge her removal, so Mr. Trump will still get his legal fight in what could be a landmark case.
The Cook firing is a calculated putsch. Federal Housing Finance Agency director Bill Pulte teed up the dismissal last week when he posted a criminal referral for Ms. Cook on social media. He said she may have committed mortgage fraud by claiming two different homes as primary residences on mortgage applications in 2021, which may have enabled her to get favorable loan terms.
Intentionally misrepresenting information on a mortgage application is wrong and a federal crime. But we haven’t seen the details or Ms. Cook’s explanation. There’s also a question of selective prosecution, since Mr. Pulte’s crackdown on mortgage fraud seems to be aimed only at Mr. Trump’s opponents. Ms. Cook deserves more due process than a presidential declaration of guilt on Truth Social.
The criminal referral is a threat to other Fed governors: Cut rates, or else. It is also a pretext to fire Ms. Cook “for cause.” The referral, Mr. Trump wrote to Ms. Cook, provides “sufficient reason” to believe she “exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.”
In reading these editorials a number of common themes emerge.
First, the editors are clearly not particularly fond of Donald Trump. Nor am I for that matter.
Second, they don’t know what “termination for cause” means. In the private sector it means termination based on behavior of the individual—malfeasance, misfeasance, or nonfeasance. Or it may mean a difference in policy views between the employer and the employed. Somewhat like “rational basis” in legal terms it means there’s a reason. It doesn’t mean “guilt beyond reasonable doubt”.
For federal civil service employees “termination for cause” is much more restricted. It means misconduct, performance deficiencies, loss of security clearance, or criminal conviction and there are due process requirements. That brings me to the third point.
I have long been skeptical of public-private hybrids of which the Federal Reserve is one. I do not believe that the Constitution empowers the Congress to create institutions outside the scope of the legislative branch and that are not subordinate to the president.
Is the Federal Reserve a department of the executive branch of government or a private organization? If it is a private organization whose employees the president may terminate for cause, then President Trump is acting within his authority in terminating Ms. Cook. If Federal Reserve employees are government employees they should receive civil service protections and otherwise be treated like civil service employees including how they are paid. That would mean that President Trump has acted wrongly in terminating Ms. Cross but it also means that Federal Reserve governors are being paid twice what they should be paid.
Shortly after the Federal Reserve was created in 1913 (at that time the Secretary of the Treasury was chairman of the Federal Reserve) President Wilson importuned the Fed to create war bonds. It acceded. Said another way, the Federal Reserve was politicized almost from its creation. Complaining about it now is a bit late.
Dave Schuler: President Wilson importuned the Fed to create war bonds.
That is incorrect. Liberty Bonds were authorized by congressional legislation under the Liberty Bond Acts.
The Federal Reserve’s role.
Your correction is incorrect or, at least, understates the Fed’s role.
I’m pretty sure the “for cause” requirement for firing federal officers has been interpreted very deferentially to Presidents before Trump, unless Congress was specific about what “cause” meant. I read about this in the context of earlier firings in which Trump intentionally gave no reason at all when he possibly could give a fig leaf of cause that could be upheld. The omission was notable, and here, the statement of cause is notable too.
The NYTimes opinion page should read the NYTimes article “What to Know About the Allegations Against Lisa Cook of the Fed.” Sounds like there is something there, but she can challenge her firing in court. https://archive.ph/ZhH7Y
I don’t think she’s protected by civil service laws because she’s a political appointee.
“an unproven allegation of mortgage fraud that one of his appointees dug up”
This is a reference to the Director of the Federal Housing Finance Agency. The irony here is that by statute the Director also can only be removed for cause. Biden fired the Director held over from the Trump administration to be replaced “with an appointee who reflects the Administration’s values” after SCOTUS in Collins v. Yellen (2021) ruled that he could.
Dave Schuler: Your correction is incorrect
It wasn’t Wilson “importuned the Fed”. It was Congress which mandated it. The first image of your link says: “Second Liberty Loan of 1917”. That’s due to the Second Liberty Loan Act, 40 Stat. 288, Chapter 56.
PD Shaw: I’m pretty sure the “for cause” requirement for firing federal officers has been interpreted very deferentially to Presidents before Trump
It’s never been subject to adjudication because this is the first attempt to remove a governor for cause in Federal Reserve history, but the Federal Trade Commission Act (1914) states, “Any Commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office”. See 15 U.S. Code § 41. Humphrey’s Executor v. United States (1935) upheld this restriction.
None of those legal provisions are relevant to the Fed. By statute she serves for full term “unless sooner removed for cause by the President.” (12 U.S.C. Sec. 242) The statute does not state “inefficiency, neglect of duty, or malfeasance in office.” The people claiming that the standard is the same as fully expressed in another statute are not textualists.
In Collins v. Yellen, SCOTUS recognized that a plain “for cause” restriction was different from more detailed language like the one in Humphrey’s Executor:
“We acknowledge that the Recovery Act’s “for cause” restriction appears to give the President more removal authority than other removal provisions reviewed by this Court. See, e.g., Seila Law, 591 U. S., at ___ (slip op., at 5) (“for ‘inefficiency, neglect of duty, or malfeasance in office’”); Morrison, 487 U. S., at 663 (“‘for good cause, physical disability, mental incapacity, or any other condition that substantially impairs the performance of [his or her] duties’”);
Bowsher, supra, at 728 (“by joint resolution of Congress” due to “‘permanent disability,’” “‘inefficiency,’” “‘neglect of duty,’” “‘malfeasance,’” “‘a felony[,] or conduct involving moral turpitude’”); Humphrey’s Executor v. United States, 295 U. S. 602, 619 (1935) (“‘“for inefficiency, neglect of duty, or malfeasance in office”’”); Myers, 272 U. S., at 107 (“‘by and with the advice and consent of the Senate’”).”
If a court is going to expound on a plain “for cause” standard by incorporating other statutes, which one would it choose? Should Biden’s example be informative?
PD Shaw: Collins v. Yellen
The decision in Collins v. Yellen concerns an agency headed by a single officer, which the Supreme Court found must be under the direct control of the executive. Hence, insubordination would be a cause for removal. It’s not clear how the Court will view that with regards to the Federal Reserve, but they have essentially boxed themselves in. The majority wants a unitary executive, yet Congress clearly intended to create an independent Federal Reserve. Furthermore, it would be catastrophic to put the Federal Reserve under the direct control of the whims of Donald Trump or even the most staid of future presidents.
The issue of the independence of the Fed is not presented by the firing of Cook for cause. The statute allows her to be removed for cause, so Trump is not challenging the structure of the Fed. The only issue will be whether cause is shown, and possibly if no cause is shown, whether there is a remedy available aside from monetary damages.
@PD Shaw
You are wasting your time. With ChatAI, everybody is an expert on everything – science, history, law, etc.
Isn’t it telling that the DOJ, which in multiple other cases has gone after people Trump wants prosecuted, has not brought charges against Cook? Shouldn’t there be some reasonable limits or definition of cause. I can tell you that in practice in the private sector cause means more than just policy disagreement. However, if you truly believe that then Trump can fire the entire board.
I think if you read the constitution and the Federalist papers that the goal was that Congress would create the laws and POTUS would carry them out. I dont really see why the constitution would prohibit Congress from creating a position that POTUS cant dissolve or capriciously fire.
Steve
PD Shaw: The statute allows her to be removed for cause, so Trump is not challenging the structure of the Fed.
Is insubordination cause? Collins v. Yellen: “And it is certainly true that disobeying an order is generally regarded as ’cause’ for removal.” If that is the case, then there is no such thing as an independent Federal Reserve, and control of the monetary supply will then be subject to the catastrophic whims of Donald Trump, or even a staid president responding to political pressures.
Meanwhile, the CDC and DOJ are being torn apart.
“Prove it”
Did I miss something? Do I have the wrong person?
I believe they have source documents which declare “primary residence” in two states. For obvious self serving reasons.
All the erudite commentary is fine, but she committed fraud. And she is a sophisticated person. No wiggle room.
I don’t claim two primary residences. Last time I looked primary meant primary. I’ll bet you don’t either Dave. Or you, Zach, PD, Steve…… Ahem.
@steve, the criminal referral was made August 15th. Maybe the wheels of justice move quicker in your world.
I’ve skimmed Cook’s complaint and she appears to be defending primarily on the ground that “cause” can only mean misconduct in office, relying on cases like Humphrey’s Executor which did not deal with “naked” causation language. I think she will be unsuccessful in that framing, because a majority of the current SCOTUS has already found that “naked” causation requirements different from other causation requirements, but that ruling also stated that “cause” is different than “at will.” I think Dave is probably right that it will be something like “rational basis” standard.
She’s not refuting any of the factual underpinnings of the criminal referral letter, presumably because she now has criminal defense lawyers that are protecting her from risk. This line of defense would still be good if she had a liar’s loan. How many Board members have lied on banking documents? They are all vulnerable?
Drew: Last time I looked primary meant primary.
That is not necessarily correct. For instance, someone can have a second primary mortgage for a disabled relative, such as an elderly parent.
PD Shaw: I think Dave is probably right that it will be something like “rational basis” standard.
The Supreme Court ruled in Cleveland Board of Education v. Loudermill that a government employee who can only be terminated for cause (as opposed to at will) confers a property right to the employee, and that termination must include due process, called a Loudermill hearing. The lawsuit seeks a declaration that the firing was therefore unlawful and void.
The SCOTUS has discussed notice and opportunity for hearing for Presidential removals starting in Shurtleff v. United States (1903), which held that a hearing was required for a statute allowing removal for “inefficiency, neglect of duty, or malfeasance in office,” but not for a naked “for cause” statutes. The Court saw those listed causes as posing a reputational harm that wasn’t present when no cause was specified, while at the same time finding that the list is not exclusive. Congress amended the statute in response to the decision, making it clear that the specified causes were exclusive, and began including hearing requirements in various removal statutes, but did not do so for the Fed.
I do not believe the SCOTUS or the courts will gravitate away from the standards in the statute when the legislature could have included them as it has done elsewhere. If the statute should have included a notice and hearing requirement, it necessarily raises the question of whether the removal provisions are unconstitutional to begin with.
PD- Chat GPT says there are no criminal charges pending against Cook.
Steve
“That is not necessarily correct. For instance, someone can have a second primary mortgage for a disabled relative, such as an elderly parent.”
You are just being silly. As PD noted, there has been no attempt to refute the charges.
PD Shaw: The Court saw those listed causes as posing a reputational harm
The issue in Cleveland Board of Education v. Loudermill (1985) isn’t reputation, but the property right that confers when cause is required for termination. The Court found that the person has the right to “notice and an opportunity to respond”.
Drew: As PD noted, there has been no attempt to refute the charges.
Cook was never provided the required Loudermill letter or a Loudermill hearing for her to respond. Trump just waving his hands in the general direction is not due process.
Again, Cook has not been charged with anything.
Steve
steve: Again, Cook has not been charged with anything.
But they did
tweetXeet at her.