Odd Lots - Lev Menand and Nathan Tankus on Why Fed Independence Is Now Hanging by a Thread

Episode Date: July 17, 2026

Last August, President Trump made the unprecedented choice of moving to fire Fed governor Lisa Cook. The administration claimed she was being terminated with cause, citing an ongoing investigation in alleged mortgage fraud committed by Cook. The legal battle between Cook and the administration has been tangled in the courts for the last year, eventually reaching the Supreme Court. This June, in a 5-4 decision, the court ruled in favor of Cook. However at the same time, in a different case, the court allowed the President to fire individual members of the FTC, undermining its role as quasi-independent body not beholden to the executive branch. So what are the implications here? How can the court change the status of a body like the FTC while allowing the Fed to continue operating as is? And for how long will the Fed maintain some amount of operational autonomy? On this episode we speak with Columbia Law School's Lev Menand who just wrote a piece on these two cases for Just Security called The Federal Reserve Exception to the Slaughter Rule as well as Nathan Tankus (writer and president of Notes on the Crises). The two of them lay out the consequences of these two decisions and they dig into the generations-long legal history, starting with Alexander Hamilton, that explains how we got here.Read more: Can Trump Still Fire Lisa Cook After Her Supreme Court Win? Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox now delivered every weekday plus unlimited access to the site and app. bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Hi, I'm David Weston. Join me every week for the Wall Street Week podcast to hear stories of capitalism from around the world. From geopolitical tensions and central bank decisions to artificial intelligence, energy, and infrastructure. We sit down with the CEOs, economists, policymakers, and thought leaders whose decisions are shaping markets everywhere we find them. Subscribe to the Wall Street Week podcast on Apple, Spotify, or anywhere you listen. Podcasts Radio News. Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Alloway. And I'm Joe Wisenthal.

Joe, let me ask you a personal question. Go on. Is Alexander Hamilton always right? I doubt it. I have not read the complete works of Alexander Hamilton. My main knowledge of Hamilton... Is it the musical? No, I was going to say my main knowledge of Alexander Hamilton is...

Christian Prenti's book, Radical Hamilton. But I've also watched the musical. And let me state at the outside, my most controversial opinion. So when that musical came out, it was a lot of people very liked it. And then a few years later, everyone's like, oh, this is Lib and Cringe. It's a good musical. And it's time for people set aside everything else. It's time for people to accept that in the category of musical theater, which I get is not to everyone's tastes.

And I have some strong opinions on how much of it is bad. It is an upper decile or upper, what's the five one, quintile musical. Hamilton being a great musical is going to be the most controversial opinion in this entire episode. That's right. But the reason I bring it up is because a couple of things have happened recently with the U.S. government. So we had a Supreme Court decision that basically like turbocharged the president's ability to fire heads of 18. agencies, right? And then we had another Supreme Court decision that basically carved out an exception for the Fed. Right. While citing, this is where Hamilton comes in, while citing the history

and tradition of, you know, the independence of the central bank, Hamiltonian theory and all of that. Right. Like I think a lot of people, even before this decision, and we, we did some discussions about this, have this view. It's like the Fed is different because the Fed is different, right? And it's like, yes, legally or sort of like on a formal written status, like, why should it be different than the FCC or the FTC, et cetera, looks the same. But a lot of people have this intuition that the Fed is different because it's different. But when you're like making laws, right, you sort of have to write something down in theory to establish that. In one of the things that was stated in the essentially decision so that Trump couldn't easily remove Lisa Cook.

which was really all it said. They sort of wrote down the thing that makes the Fed different. And one of the things they say is like it has a tradition going back to Alexander Hamilton. Right. So the Hamilton exception. Right. And I mean, you know, on the one hand, I think you're right that a lot of people would argue that the Fed is different because the Fed does monetary policy and ostensibly you want an independent central bank. But on the other hand, the Fed does a lot of regulatory things that look a little bit more like an Asian.

agency. So anyway, we're going to get into all the details of the case and what makes the Fed special, I guess, and why the president can now fire people at the FTC or the SEC, but not at the central bank. We have the perfect guess. We're going to be speaking with Lev Menand. He is, of course, a Columbia law professor who's been on a number of times before. He also just wrote a paper called the Federal Reserve Exception to the Slaughter Rule. There we go. Yep. And we're also going to be speaking with Nathan Tankus, he is the president of notes on the crises and has been writing a lot about the Fed and also government agencies more broadly. And also a repeat guest. Also a repeat guest. Friend of the pod. All right. So thank you very much for coming back on all thoughts. Thank you for having me. And I want to make it very clear at the jump that I am in no way associated with Joe's opinions about Manhattan musical. It's horrible history. And by association, I'm not going to subscribe to the musical itself is good absent the content. Just chuck it all out. Lev, do you want to disclose your Hamilton musical opinions up front? I went and I enjoyed it.

Okay. That's all you. Okay. That's it. That's it. All right. No more. That's all. That's all. That's it. Hey, come me to take it and I might change my mind. All right. Why don't we just begin? Like, we need a bit of context and background on this. So let's start with something called Humphreys Executor, which seems to come up quite a bit in these cases. What is it exactly? Humphrey's executors is a Supreme Court decision from 1935, unanimous Supreme Court decision rejecting President Roosevelt's attempt to remove a member of the Federal Trade Commission without cause. And the court said Congress passed a law, said you can only remove members of the Federal Trade Commission for inefficiency, neglect of duty or malfeasance in office. And you don't

have some inherent constitutional authority to override or ignore that law. Now Roosevelt had reason to think he did. The Supreme Court had decided in 1926 split decision that the president was allowed to fire a postmaster without the consent of the Senate, which the statute required. And Chief Justice Taft wrote this long opinion saying the president has these inherent powers. And everybody interpreted that opinion to mean federal trade commission, you could fire those people. And so Roosevelt was just like, I'm doing what Taft said, presidents could do. And the court was like, no, no, no, no, no. That's okay for a purely executive officer, but we're going to cabin that Myers decision. And if the agency or the government official has functions that are

quasi-judicial or quasi-legislative, like the Federal Trade Commission, and like a whole bunch of other agencies, then it's totally appropriate for Congress to put limits on the president's power to remove these officers, and the president doesn't have any inherent constitutional authority. Ever since that decision, the presidentialists have been aggrieved.

Humphrey's executor, unfairly limited Myers, and this conception of this sort of president who can oversee the whole executive branch, And in a way, what we're experiencing is the great victory of the anti-Humfrey's executive crowd who have been fighting to get back their version of Myers from 1926 all this time. Can I just ask really quickly? So the court decision back then, one of the things you hear is like the reason you don't want the president to be able to fire heads of agencies is because you want some continuity with, you know, technical. staff who are working at these things. And you don't want a president who, for instance, I don't know, on the night that he's leaving office just decides to like fire everyone for the incoming president.

Did they cite public good or anything in their decision? I can't emphasize this enough. The Meyer's decision was radicalism and it was the court striking a sort of wild blow at Congress and at the rule of law to say that the president can just override these statutes. And Humphrey's executor was walking back something that the court really should have never done. And what's gotten sort of overlooked, I think, in recent years is the extent to which these bipartisan multi-member commissions, the Federal Trade Commission, these are lowercase C conservative institutions. They're meant to stabilize the law, to moderate the law, to prevent polarization, to allow people to make long-term investments. about our capital markets being attractive. And what we do here is we now mean that every four

years you can get a major shift in policy. You don't see that anywhere discussed by the majority in the recent cases or by Taft in 1926. I do want to tackle the specific thing in your question. Basically what you're referring to is a kind of policy justification for insulated. officers from direct presidential removal, but that's not necessarily the legal framework in which this is structured. Like, you know, now they're obviously policy, it's inextricable, but their policy justifications for various things. But at root, it was the question of what legal, like, what legal powers does Congress have

to structure things in the executive branch without just sort of the, the jurisdiction. direct command of the executive branch. And to bring up that point about Myers and Humphreys executor, this quasi-judicial language and quasi-legislative language was an attempt to kind of thread the needle between not fully overturning Myers, but getting the substantive policy thing that you would want to carve out and make that more limited. And in a lot of ways, that attempt to make a decision where what they wanted, removal protections were quote unquote consistent with Myers or in some ways why we're in the situation we are in today.

And of course we can talk more about that. You know, one of the funny things about this conversation to me is like, okay, so we have these various governmental entities that sit somewhere between the legislative branch and the executive branch. And one of them is the Fed. Now, it just so happens that in, this is how I say it, it just so happens that in the world of economics, in the world of academic economics, there is a particular premium that academic economists play on so-called independent monetary policy. Is that just sort of a coincidence? Like, you know, I don't know, like, I mean, I imagine academics like the idea of all kinds of independent bodies that are outside the realm of, quote, politics. But it's sort of funny to me that the Fed does on some level sit in the same realm as like the Federal Communications Commission legally. I don't think that there is the same degree of like it is very important that from a functioning standpoint, communications regulation is independent?

You don't hear that same sort of talk the way you hear from academic economists. Is it just sort of a fluke arrangement that the Fed sits in the sort of regulatory? sandbox that happens to align with how many purely econ folks think the Fed should be set up. I don't think it's a fluke, but I don't think it has actually much to do with law. Yeah. I think it's an ideological thing. I think, you know, as we'll get into in more conversations about quote unquote history and tradition, there's this indication of this longer legacy. And we both Lev and I have huge problems with this invocation.

But nevertheless, it is true that there's these institutions. the First and Second Bank of the United States, the Bank of North America that were founded, that had various things that insulated them from presidential or even at times congressional control. And there's, of course, a huge history of these kinds of institutions which people now look back on and call central banks, even though that wasn't the conception of the time in Europe. And, you know, economists are very familiar with those histories because they're proto-central banks. So that's what's important in their minds. And economists, you know, if you're theorizing in the 1950s or 1960s, if you're Buchanan or any of these big economists, it doesn't occur to them to like maybe I should read administrative lawyers in terms of thinking about how these things are structured.

Economists always have this weird thing where they're talking about things that we refer to. But it's different, it's like a different thing in their models and they're just named the same. like a central bank in an economics model is very different than a central bank in actual legal reality. One of the things that I've really emphasized for a number of years about this point, up until these recent Supreme Court decisions, as a legal matter, the Federal Reserve had the weakest protections against removal of any of the independent agencies. And if you thought that economists cared at all about administrative law, that economists actually thought that these legal protections meant, mattered, you would think that they would advocate for the strongest removal protections being at the Fed. But no one ever cared because it was all this norm thing. In March 1951, you know, two people handshake. They read a release of press release called, you know, the Fed Treasury

Accord. And, you know, that's good enough for economists because for economists, it's all the sort of like vague credibility stuff rather than legal institutions. I think an important part of a context here is the post-Vulker shock development in the economics profession of a whole literature that says you need an independent central bank in order to provide monetary stability. Yeah. And that literature was very influential. And the United States government spent decades, and so to the IMF, going around the world and persuading other countries to change their laws to make their central banks independent of their finance ministries. And this is somewhat contingent that this literature created a bit of a dissonance that we were

about to say, actually, this thing the United States has been promoting around the world for decades now. It's unconstitutional here in the United States. This created incredible dissonance. It's not to say that nonpartisan communications policy isn't important or that legal stability in our capital markets regulation by having a bipartisan commission structure for the SEC isn't important. It's just that there wasn't this enormous amount of academic attention and then sort of proselytizing globally about it. Nor is there much of a sense. here, I think, that we already have a very political bureaucracy in the United States. You know, the Treasury Department, layers upon layers of people are political appointments. And in a lot of

our other advanced economies, like, it's just taken for granted that communications policy is done by civil servants by and large. If I could just ask a quick follow up to that, one of the things that we've heard in the wake of the decision is that if Congress has, you know, known that the president would have been able to remove people at will or just automatically fire people from, say, the FCC or the FTC, they wouldn't have arranged these entities as they did. What was it about these particular realms? Because other agencies of regulatory responsibilities, too, what was it about these particular realms where they thought it's particularly important that we have sort of co-equal ownership almost of them.

So the first one of these independent multi-member regulatory commissions was called the Interstate Commerce Commission, and Congress created it in 1887, and Congress envisioned it as like a specialized court, because up until that point, railroad regulation was enforced through the federal courts. You would have a bunch of statutes, and then you would bring cases against the railroad, and federal judges would decide them. And Congress was dissatisfied by the ability of generalist judges to adjudicate these disputes. They came to think, actually, we need specialists who are experts in railroads, who have some understanding of these complex modern markets,

who are going to develop the law, that our common law-based system of economic regulation was obsolete. And that's sort of the germ of what became the modern American administrative state with these sort of court-like bodies. And so the Federal Reserve Board, which is created in 1913, is an interstate commerce commission style body for banking. They're supposed to be judges of the banking system who have the ability to adapt the banking law to circumstances case by case in a way that wouldn't work very well if we were to use the federal judicial. and prosecution and have statutes cash down in that manner. And that was how Congress actually came to this. And so communications, these are advanced economic sectors that need specialist judgment applied. Of course, through the 20th century, these agencies evolve.

They start to pivot towards rulemaking. And, you know, they do less and less. of their policymaking through adjudication, through case by case. That's an unfair method of competition. Company X, let's have sort of in-house FTC assessment. They start to write general rules. And obviously, we're very familiar now, like capital rules.

That's like a big area where the Fed is active. But the stress tests you can think of actually as sort of this type of adjudication, this body was set up for in 1913. Expert judgment, does this large bank have enough capital? And that was a judgment that Congress felt was quasi-judicial. So it can't be partisan. There's due process, but sufficiently technical, that it wasn't something you wanted the Article III judges trying to figure out. I think what Lev brings up really highlights that economic motivations and a belief that you're dealing with

that very advanced economic issues has primarily been the driver for these multi-member independent commissions. And if anything, I would say that that was a weakness, that people were especially motivated in that case and less motivated by, say, science having an independent framework. You know, I wrote about this in a piece

that only published last year, but I wrote for Lev in another publication in 2021, where, if you look at 2020 or 2021, it's not at all clear that the independence of the Federal Reserve was more important than the independence of the CDC. If we're talking about credible commitments, about forward guidance, those ideas would have been much more helpful and much more important at the CDC than at the Federal Reserve at that time. And furthermore, as of our experience at that time highlighted the ability of, say, Fauci or whoever to speak fully independently of the president

in articulating what the latest best science of. I mean, we're talking in a very literal sense hundreds of thousands, potentially millions of lives is the difference. It's great that Nathan brought up the science because if you were building the government from scratch, in light of the experience we're having right now in the second Trump term, you would think that the way we hand out NIH and NSF grants, which is critical to our research universities functioning, should be independent of partisan politics. But when it was set up, it's just, you know, it's part of the executive branch. And so norms were undergirding that.

And so no one had looked closely before, you know, at whether that was the right structure. And so the fact that the Fed had this structure that was like the ICC is somewhat historically contingent at the end of the day. Trump's a great stress test. Yeah. Stress test for the constitutional system. Before we go any further, let's just talk about the court's reasoning behind the carve out. Okay. So I'm going to put you on the spot and just ask you to summarize.

And then we can ask you a bunch of questions about why they went that way. But history and tradition, what did they mean exactly? So they have this case called United States versus Rahimi, which is a Second Amendment case. And this is the crazy thing. There's like a gun case connected to the independence of the Federal Reserve. That is now the doctrine that is supporting the carve out. So last year, some listeners might recall, some court watchers might recall that there was this decision, Will Cox, where they gave us a single sentence saying, sort of indicating to the president, you know, work. kind of looking the other way as you remove all these other government officials, but the Fed will be

different. And then that gave rise to the Cook case as a four-cause removal. They've made some innovations since then. And the big innovation is to bring in Second Amendment doctrine. And the way the Second Amendment doctrine works briefly is that they understand the Second Amendment to be this absolute right to bear arms. And then the question is, well, there must be some abrogations of those rights. It's such open text. We can't possibly enforce it that way. How do we know when it's okay to abrogate that?

It's like you're not allowed to own nuclear weapons. Exactly. And so they say, well, we look to the sorts of regulations that took. place in the founding period. And then we understand that those exceptions are okay. And so there's now Second Amendment jurisprudence has turned into this wild game with hiring all these early American historians and all these arguments about what type of firearm rules there were in the 1780s to try to decide what analogs Congress is allowed to have or states are allowed to have. today. Never mind that this is not how the Second Amendment was understood in the 1780s or any of that.

This is all sort of this, this is all recent development in Second Amendment world too and has created all sorts of weird dynamics. Now the court is saying that's how we're going to understand an exception to our new categorical rule in slaughter that says president can fire any executive officer and, you know, basically everybody in the government is an executive officer. So they need an exception and they say, oh, we're going to look for, you know, is there an analog, just like in our Second Amendment, you know, is there a history and tradition? That's where the language comes from, from Rahimi. Everyone to the library. Everyone to the library. Is there a history and tradition of this? Okay, there's so many weird things about this. One of which is nobody looked to see if there was a history and tradition for the FTC in the slaughter case. So they decide that without mentioning this. And then the Cook case, they're like, well, you know, let's look to see. And then, voila, here brings us back to Alexander Hamilton. Voila, there is a history and tradition.

Because Alexander Hamilton said independent monetary policy, that's very important. I mean, I have a lot of thoughts. And we must do what Hamilton says. We must do what Hamilton says. We are the host of the podcast, Encore. Check out our brand new episodes featuring music from the show that everyone is reheating as we speak. Heated rivalry. Join me as I go behind the songs that brought Shane and Elia together.

I'll tell you the stories of Fice, My Moon, My Man, Wolf Parades, I'll Believe in Anything, and tattoos all the things she said, and how they all became a part of this global phenomenon. Stream encore on IHeart Radio, Crave, or wherever you get your podcasts. Hi, I'm Tom Keene, inviting you to join me for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of stock. stocks, bonds, commodities, even crypto, all the information you need to excel in the markets.

And I'm Alexis Christophores. Listen to us for essential conversations with the smartest names and economics, finance, investment, and international relations. That's the Bloomberg Surveillance Podcast. Subscribe today on Apple, Spotify, or anywhere you listen. I have like a sort of philosophical question. So maybe I'm going to ask you to put yourselves in the minds of these sort of like executive branch. maximalists and, you know, we should probably have one on. We will have one on at some point. But I understand what the letter of the law says and following the Constitution, advice and

consent of the Senate and so forth. For all these positions, whether we're talking about just normal cabinet level members or not, if you sort of take this sort of maximalist executive branchism, what is even the defense of the Senate getting to say, no, you can't have that person be your defense secretary. You can't have your person be your Department of Energy secretary. Like, what is even the logic there at that point? If these are going to be true employees of the president. One real tension in what's known as formalist separation of powers theory is the fact that, and they can't really get around this, the constitution is blending functions across departments, as they would have called it back then, not branches all over the place.

So you're mentioning the fact that the appointment's power by the plain text of the Constitution is shared with the Senate. It's a joint appointment. Yeah. The vice president of the United States, an executive officer, serves as the president of the Senate. The president can veto legislation all over the place. The powers are blended. Formalist separation of powers theory basically accommodates this.

by saying the Constitution structure requires that these powers be completely separated, except where it explicitly says they can be blended. And they can't really tell us. I think I can make a defense of this. Well, it's the defense. So, you know, unitary executive theory, voice, mind, everything. So, yeah, the Constitution says that we can't quite get around that. But all they're saying is the appointment.

is the appointment. So there is a entry. You know, of course, proper, you know, legislative supervision and what they are supervising is the entry. It would be absurd to say that like, that once they've entered the executive branch and have become employees of the president, that the president can't remove them and fire them. There is no removal. There is no, well, there is removal protection, but there is no principle where like there's a formal process for the Senate to look over oversight of firing a cabinet head. So this is the only process we have. And, you know, the founders in their infinite wisdom decided that this was the proper role of the Senate in this process. Yeah. The tension is

just that if you think that the president is there to check Congress by executing the law as the president sees fit and not as Congress forces the president, then you're going to experience attention from the fact that the president can't make the appointments the president wants to help the president carry out the president's duty. The president is stuck getting the Senate to consent. Otherwise, that person can't serve. And that does reflect a sense that the president is not absolute in law execution. And you might think that it, follows naturally that Congress can shape the executive branch through limits on removal. But that is what this court just said Congress can't do except for the Fed.

Yeah. Because, let's just go back to it for a second, because Alexander Hamilton thought independent monetary policy was important, which is true. But the huge mistake that they're making, just fundamental logical failure here, is that the First Bank of the United States, which is what Alexander Hamilton was advocating for, was a investor-owned commercial bank. It was not in any way abrogating the president's rights to remove executive officers.

Nobody at the First Bank of the United States was an executive officer. It's not a government body. It's not a regulator. It's not part of the government. the government originally subscribed to 20% of the shares but then sold them. It was a private commercial bank. And so it's just a misapplication of the Second Amendment Raheimia analysis.

You know, in the Raheemian analysis, you're looking for a restriction on gun rights that existed at the founding and trying to have an analog. There was no restriction as reflected in the Bank of the United States on the president's removal power over executive officers. Alexander Hamilton didn't want a government bank. And that in his report on a national bank, he says a government bank is a bad idea. We need an investor-owned bank. And so they're just, they're misreading Hamilton.

Well, on a related note, so Hamilton says that we need independent monetary policy, right? But I don't think he says we need independent banking regulation at any point in time because I don't think we really had a banking regulator back then. Didn't have banks yet. Yeah, exactly. I mean, that's a really important point. Yeah. The first bank really is the Bank of North America, which is a state chartered institution that it gets like actually multiple state charters and sort of like stitches together a monetary power out of that. Very Articles of Confederation.

Yeah, that's another point. It was founded before the Constitution. And you only start getting banks of New York and all this stuff in 1890s. And like you don't you don't get, you know, generally. incorporation for state chartered banks until the late 1830s. And so it's a total misunderstanding. And as you're pointing out, all sorts of things, security regulation, financial regulation, is cut out of history and tradition by virtue of just like that was the developmental point of the 1780s. Well, what I was getting at is, okay, you have this decision citing Hamilton on monetary policy.

You don't have anything to back up the sort of like regulatory aspect of it. So could we end up in a situation where someone ends up saying that actually the Fed has improper authority over regulation and not monetary policy? They're already saying it. Yeah. So there are people saying that. Here's the tricky situation. The Federal Reserve Board of Governors, which is the seven member multi-member commission that Congress created in 1913, which is a government body whose officers are principal officers of the United States,

who have limits on their removal that the president, the court has now said, has to respect. That body is not a bank. It has no balance sheet. It can make no loans. It does not have what we think of as the Fed's balance sheet. It can make no loans. It is a government agency. And it regulates banks.

banks. And it conducts, quote unquote, monetary policy, which is overnight interest rate policy. That's how the Federal Reserve pursues its section to a mandate currently through regulation of the Federal Reserve banks, which are government chartered banks, but they're nominally outside of the government. They are membership cooperatives owned by the investor-owned banks like J.P. Morgan Chase, so the Federal Reserve Bank of New York, that is a bank. That is outside of the government. The Federal Reserve Board of Governors, that is a government regulator. That is inside of the government. And all the Board of Governors does is regulate stuff. And so it carries out monetary policy through regulations. And it also does bank regulations, but those are all

monetary policy in a broader sense. They are not used to adjust monetary conditions for macroeconomic reasons generally, but they could be. And so currently what the Trump administration is doing is relaxing the equity capital requirements on banks. This is stimulative. This is monetary stimulus. That's not why they're doing it, but it is stimulating the economy right now. And the court has no easy way out of that, which is why you have this weird footnote six in the Cook opinion. I love weird footnotes. Yeah, there's a lot of great, weird footnotes in these opinions. And footnote six, you know, Chief Justice Roberts, you know, is saying, well, our exception

for the Fed is as the Federal Reserve is currently constituted and with its existing enforcement authorities. It's just to head off at the pass, the idea that, well, let's go power by power and see whether these are actually, each power the Fed has is, like, consistent with Alexander Hamilton's vision. because if you start doing that, things start to get really messy and confusing. And Clarence Thomas does that.

I do want to pick up, since you said the no balance sheet thing, and before we started, Tracy asked for, like, really getting into the weeds. And this is like a big hobby horse of mine, as you know, to really, like, emphasize the point that Lev is making. So, you know, I cut in, well, they do have a balance sheet. And what I meant by that was,

is technically speaking, the Federal Reserve Board, is, and subsequently also the FOMC, is funded by assessments on the Federal Reserve Banks. So you can kind of think of it as similar to the assessments for the FDIC fund, but instead of it being on commercial banks, it is on the Federal Reserve Banks themselves. And so they have these assessments and they can determine the assessments at wherever they want. And this is really, actually, really important because one of the most unique thing about the Federal Reserve board is its complete autonomy from the appropriations

process. And the basis of that complete autonomy is when they want more funds, they have complete autonomy to raise the assessments on the Federal Reserve banks. Now, formally, this is an assessment. You kind of think, oh, we're just taking some money from here, taking from money there. But if you think about it, the Federal Reserve banks are creating money. And so whenever they, you know, hit an assessment,

and order up some order up some more assessment payments, they're essentially directing the Federal Reserve Banks to create money and credit the Federal Reserve Board's bank account. The Federal Reserve Board has a bank account with the Federal Reserve Bank and runs its spending, pays its payroll out of that. And that's what keeps it complete separation, keeps the OMB out, keeps the White House out. And this has been a recurring argument where literally was like, well, if you don't do this, they won't be able to, they might not, they might run. out of the budget to process checks. And we want them to process checks. So we've got to give

them unlimited freedom from appropriations. And that unlimited freedom of appropriations was obviously founded on being independent of the president. Because if you have unlimited freedom from appropriations and you can, and you have direct control of the Federal Reserve Board, it's not the Federal Reserve Bank's. It's literally the board part where you can just raise assessments as you want and spend, spend, spend. So there's been a big hobby board that they kind of have total freedom of fiscal policy notionally over their operational expenses, but that can be, of course, defined in all sorts of ways. This sort of is a nice, brings me to the question that I had on my mind.

So can a random person file a friend of the court brief? Or do you have to be like a lawyer or something like that? Could I have, could one of us like file an amicus carry? You need a lawyer to represent you. So let's say this comes up again. Here's an argument. Let's say I want to find a car vote and I want to find something more compelling than this weird Second Amendment thing. What is wrong with the argument that says, look, regulatory policy is monetary policy. So there's no separating those because they've read the Fed unbound central banking and time of crises by Livemanon. And monetary policy can be recast as a clause. fiscal policy. We see it in, you know, various ways in which loans get directed to specific sectors. We certainly saw that during COVID. We saw the rescue of Silicon Valley Bank, et cetera. Monetary policy alone. And, you know, there are ways to structure loans that are essentially

fiscal allocations. There's not a bright line between monetary and fiscal policy. We've clearly established that the power of the purse rests in Congress. This is a known thing. why not make an argument that, no, monetary policy is fiscal policy, fiscal policy is Congress, and therefore it's just not like these other things. So I suggested that the court do this in a Law Review article that I guess was published about May 1st called the Unitary Executive and the Federal Reserve. What is distinctive about the Federal Reserve Board, and this does tie exactly to what Nathan was saying, is that.

its independence implicates the ability of the legislature to use the power of the purse to check the executive, which was actually at the heart of the framers' understanding of the separation of powers. Alexander Hamilton said, we're going to be safe under this constitution because the sword is in one hand and the purse is in the other. Because we could clearly, like, if it were entirely under the president completely, we know from COVID, we know from the GFC, we know from SVB, we know from other things. that there would be all kinds of ways to structure things under the form of lending and loans and nominal monetary policy that could have fiscal functions. Yeah, I mean, I've been getting to this a lot of the last few years and trying to get memos and justifications from this from the Fed and specifically from the Federal Reserve Bank of New York. And specifically around like it's very under talked about, but they made a lot, made use of a lot of non-recourse loans. and a non-recourse loan is just, you know, if you're making a non-recourse loan and it's much above the current asset value, it's essentially a purchase.

And that power is extraordinary high. Like, there's nothing on the books that can prevent a unitary executive fed from making non-recourse loans where they're putatively accepting it as collateral for Trump coins and just buy Trump coins. Right, right. But it deeply threatens the actual constitutional scheme to let the president have access to the money printing machine. And Alexander Hamilton was referencing this. And this goes back really to like Magna Carta in the Anglo-American legal tradition. The idea that the way we ensure we don't have a tyrannical executive is that the legislature controls access to supply. And Sir Paul Tucker, the former deputy governor of the Bank of England, has been making this argument for many years now, that that's really the logic.

Now, why didn't the court embrace it? Why didn't the court embrace it? Well, one problem is it's really inconsistent with their theory of the Constitution separation of powers, which is a formalist theory. because it says things that impede functionally on Congress's power of the purse, well, we can't allow the president to control them. Well, you know, the Board of Governors of the Federal Reserve System isn't the only part of the federal bureaucracy that implicates Congress's power of the purse. And so there's a very important Supreme Court case from the 1980s called Boucher v. Sinar,

which was about the Emergency Deficit Reduction Act. where Congress was trying to ensure that the government didn't spend over certain spending levels to help bring down the deficit in the 1980s. And as part of that law, it was a bipartisan compromise with the Reagan administration, an officer called the Comptroller General, who the president cannot remove at will, was given the authority to calculate certain caps. And the court struck that down, said the Comptroller General cannot have that power because that's an executive function.

and this is an officer that president doesn't have the right to remove it. And during that period, people thought we were going to have a resurgence of Myers. What we just had in slaughter, they thought was going to happen in the 80s. And the court is committed to that. They don't want to give Congress the power of the purse in that way that you're suggesting because it would mean that other functions besides the Federal Reserve Board would need to be protected from presidential plenary power. That I think is really a point that really needs to be hammered, which is coming out of the New Deal, certainly partly the progressive era, but especially the New Deal, we kind of had a compact in the 20th century in the United States where we were going to have this expert administrative state that was insulated from the president with various removal powers. Congress would have great power to structure how the federal government worked, how the administrative. agencies worked, but this would be balanced by broad scope for judicial review. So there'd be a lot

of judicial review for actions. This, you know, comes out the Administrative Procedure Act, which I believe it's 1946. And so there was, and there are other acts that are around that, but these are kind of the central thing. So we created this system. And at the basic political level, you have to see that this compact, this New Deal legal order, was something that the presidentialist that the burgeoning proto unitary executive theorist hate. You know, if you listen to people around like the Trump administration, Bruhaha, they talk explicitly about how they want to kill the fourth branch of government, by which they mean the administrative state, that they see this is the big albatross. Wilson is like the biggest evil for having introduced this. Like that's,

you really can't underestimate that drive. And then on the political level, in terms, terms of tech and tech swing to the right, they, the people who are bringing this presidentialist stuff are finding a very receptive audience in the newly radicalized right-wing tech world because they have had, they, they had were shocked and bewildered by Gary Gensler and Lena Kahn. And as a result, like, you know, and they're also all on X, the everything app and and, you know, cooking themselves in signal group chats. And they're looking at this. And they can't possibly see the kind of common sense reasons that, say, Levin, I might think that what Gary Gensler was doing on crypto, which we both think of as insufficient.

I think it's fair to say. And what Lena was doing as nothing but a bureaucratic deep state conspiracy against the leading lights developing. And so this is, I think, a big part of the political story of the second Trump administration has been the merging of these long-time federal society, far-right think tanks with new converts who act with the zeal of the converted to just rip apart the quote-unquote fourth state, the fourth administration, the fourth branch of government. Hey, I'm Ruby Carr, the host of the podcast, Encore. Check out our brand new episodes featuring music from the show that everyone is reheating as we speak. Heated rivalry. Join me as I go behind the songs that brought Shane and Elia together. I'll tell you the stories of Fice, My Moon, My Man, Wolf forades, I'll Believe in Anything,

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That's the Bloomberg surveillance podcast. Subscribe today on Apple, Spotify, or anywhere you listen. Okay, so we've been doing a lot of looking back, which is fair because apparently history and tradition is now relevant in ways we perhaps didn't expect. But I want to make sure we address the looking forward. All right, so we have this carve out for the Fed, including its enforcement abilities, apparently. Is it safe? Everyone's safe. Fed's safe. Independence is preserved. now? The Fed is not safe. This is not a good situation that the Fed has found itself in. The Fed is an endangered species now. It might be the only independent agency that's constitutionally permissible. The court has gone out of its way to delegitimize independence and nonpartisan administration. And then inexplicably, they've said, but it's okay for monetary policy. They're undermining the

norms that support actually independent agencies in doing this. And the carve-out, the Cook decision is five, four, and there are only two out of nine justices that think the outcome makes sense. So seven justices think differently. There's the three- Explain that discrepancy. Yeah. So Justice Kagan, Justice Sotomayor, and Justice Jackson join Roberts and Kavanaugh to make the five in favor of Lisa Cook. But they, of course, are dissenting in slaughter. They're the three justices dissenting there. They don't think slaughter makes sense. So they don't think the Fed, they don't, the Carvette doesn't make sense of them. They just think the Fed is constitutional, just like the FTC is constitutional. And so there's only two justices that think that the FTC is not constitutional,

but the Fed is, at least who have announced themselves. Thomas has gone out and said, I think the Fed has to go. The otherwise, have not fully put their cards in the table, but they voted against Lisa Cook. And so even if they ultimately endorse some carve-out, they thought that Trump should be able to remove her during the pendency of the litigation, which means whatever central bank independence they ultimately potentially endorse, if they were to ultimately join on the carve-out would be like not serious independence. So it's only Kavanaugh and Roberts that really buy this equilibrium, which suggests this is an unstable equilibrium that's very dependent on the current composition of the court.

And that, you know, Roberts and Kavanaugh are youngish by the U.S. government standards, but they will not serve forever. And it is hard to imagine that this equilibrium will outlast them, given all of the skepticism on both sides about the carve out. And the way in which now the Federal Reserve Board sticks up like a sore thumb in the administrative state, almost like attracting attention. The presidentialists want to finally win. And it's going to be hard to get the Democrats to accept that the court has just run over all these other agencies, but, you know, stand back from the Federal Reserve Board.

In my piece two weeks ago, my piece's title is just agency independent. in one agency, Humphrey's executor is cowering in the basement of the Eccles building. And that, like, basically communicates my perspective on this, is that, like, this is, it's, you know, 5'4, it's so close. It doesn't make sense. I mean, I got to give it to Clarence. Like, he's right. It doesn't make any sense. Like, I'm on the other side of where he's going to take the conclusion that it doesn't make any sense, but it doesn't make any sense. And I wanted to pick up that point about protections. You know, this. case also deals with the question of like how much protection there actually is at the Federal

Reserve, you know, obviously specifically for Lisa Kick, but for everyone. Because it's important to keep in mind, this whole thing that we've been talking about has not been about the president's ability to fire an agency head. It has been about the presidency's ability to fire an agency head without cause. What Humphrey's, what killing Humphrey's executor removes is that you don't need cause to fire an agency head. But just because there is cause doesn't mean that like it's hunky dory because we have to define what cause is.

And this is one of the biggest ironies is is the Fed went from the agency with the least with the least removal protections because they didn't define cause in the act. Although I think that's because Humphrey's executor came out just a few months before and they literally waited on passing

the bill to see the act. So I think they thought it was kind of obvious that they meant this general tradition. And of course, unfortunately, it's not obvious. But anyway, now they've gone from the agency with the independent agency with the lease removal protections to the most just by mowing down everyone else. And they're like in the trench. You know, speaking of the Fed sort of hanging on the thinnest of reeds here, which is, okay, on setting again, second.

Amendment, Hamilton, you find some story, it's not even really, you know, there's only two people who even buy this story at this point, given what's changed at the FTC. One of the comments was, well, the Fed is very important for financial stability. That if you like, that you mess, that if you mess with the Fed, there can have big repercussions, which I think most people would probably agree with. But that doesn't sound anything like a doctrine that is like could be embedded in law. Oh, it would really be, it would really be destabilizing. It's not a good opinion. Right. Like, that doesn't strike me as like the type of language that it's like, there's like a real, you know, there's nothing of the Constitution I don't think that specifically

says like, oh, when it gets a little dicey for the financial markets, then some of these things are. Well, the irony is that this, what you're talking about actually has a very rich history and tradition in U.S. constitutional law. And this is something I've been like focused on for a long while, which is, you know, okay, in the Constitution, in the constitutional times, the term bill of credit is what they refused for money today. Very famously, states were banned from issuing bills of credit. There was a whole debate about whether the federal government should or should not. The power wasn't included, but wasn't explicitly barred.

But then there was the question of like, well, we have no money. And the solution that came about was to start chartering banks. That's how we started state chartering banks. In the first place, a lot of the first petitions are like, we need a medium to pay taxes. So give us a medium to pay taxes and issue bills of credit. But a lot of people, a lot of smart people at the time, looked at this and went, well, wait, we're banning the states from issuing bills of credit. But they're allowed to charter banks that looks like,

they issue bills of credit. And this book was a huge Supreme Court concept because there are people who are arguing, you know, a Treasury Secretary Crawford was a Treasury Secretary in the world for 1812, would say when he was a Georgia, Georgia Senator, I believe it's Senator, maybe congressman, that, you know, what someone does they do by, you know, what someone does by another, they do by their own hand. So they don't have the power, essentially if they don't have the, if they don't have the power themselves, they can't delegate the power. Okay. And that's the idea of like with, you know, giving state charter banks the ability to issue bills of credit, you're delegating a power you have no right to delegate. I feel like you're trying to work

in here a claim that the state banks are unconstitutional. I'm not making that claim. What I'm saying is that there's a lot of historical evidence that, uh, uh, chief, Chief Justice Joseph Story or Justice Torrey, uh, believe that was. the case, but thought it would be too destabilizing to do it because you would then just buy fiat, eliminate the main monetary medium for the country by knocking down as unconstitutional all the state chartered banks. And instead, they find some flimsy justification for why these things aren't bills of credit. And there's evidence that seems to be that he would say this stuff in correspondence with Daniel Webster, who would write it in his constitutional writings. But

But it was a kind of like serptitious. We all think this, but we can't really say it explicitly out loud so much because it would destroy the antebellum American monetary system. What you just mean is that necessity trumps law in certain circumstances. Or necessity becomes substantive law no matter how much people think they're formalists. Concessions of necessity. Even back two centuries ago. Yeah.

I think it's right to say that, you know, what makes a judicial decision legitimate or illegitimate. One factor are shared legal understandings and legal arguments. And that's why the court puts out these opinions to try to persuade the epistemic community of lawyers that what they're doing is within the bounds of their discretion. It is consistent with law. But there's some other constraint, which just has to do with the outcome. Maybe they could tell a good law story. But if the outcome causes us to lose a war with a foreign nation or causes the economy to go into recession, then that is delegitimating the decision in a sort of more brute force way. It's not about what is our intellectual understanding of your argument. It's just like, look at those results. That can't be a legitimate outcome. And I do think there is some element here where the court. would rather have an incoherent legal explanation for the carve-out than face the legitimacy crisis that might occur, they don't know if it will, but might occur if they had overruled

Fed independence. Trump had fired everybody else on the board, and the market had gone into a tailspin. I have one very last tiny question. I'm going to open up a huge can of worms, but we only have a few seconds. So I'm going to do the most trolley question a short time. Okay. There was this position that you said that like tried to limit the executive's ability to do independent fiscal policy outside of Congress. Isn't a good solution to that. One way the executive could do fiscal policy without Congress is fire everyone at the IRS. You don't collect any taxes. Suddenly that's very stimulative. Isn't a good solution. to that, the debt ceiling.

Well, these are pursuing the debt ceiling. There's what I'm saying. Isn't this the defense of the debt ceiling, which we, you know, all of us wise people hate, that it's a way to prevent the executive from doing unilateral fiscal policy? Absolutely. I mean, before the debt ceiling was in place, Congress used to specifically authorize all of the debt issuances. When Congress would do a spending program, they would join it with a funding.

I'm saying the executive could fire the IRS and say, oh, just take 51 weeks of vacation. You don't collect any taxes. Suddenly you've done stimulus. And the one thing that may be in law that could prevent that is the dead telling. Anyway, I don't want to. I'm not actually. I think that, you know, just to take it as a straight matter of law, I don't think that would be a limiting principle. Because, I mean, this is actually a very interesting thing.

Because for it to work the way you're describing, there would have to be some mechanism to create removal protections for officials at the IRS. And because otherwise, if it's just like though the debt ceiling, well, the president can fire all the people from the IRS and just wait until it hits the debt ceiling. The, you know, society's going to collapse well before you actually hit the debt ceiling. Let's just be clear here. It's illegal to fire everybody at the IRS. They're civil servants. They tell them to go on vacation and to scroll Twitter all day. Yeah, right. But this is a big, but I do want to actually, because this does bring up a point that I really talk about in my piece is that if you're limiting removal protections from from the from Congress it also implies

you can't that the courts can't reach in and create removal protections among agencies. Okay. And that's important because it means like, okay, if some court says that what the federal government is doing is illegal and Trump just keeps on firing the guys who try to follow what the courts say, then the law is what Trump says. And there's a series of what are called shadow docket decisions where they haven't given their reasoning where all sorts of injunctions and injunctory relief and ways of stopping brazenly legal activity from the president have been sidestep. And when there's some money involved and just going, no, no, no, you can't go through the Administrative Procedure Act and say, hey, they didn't do the proper procedure. so we get to stop this activity, you have to go to the federal court of claims and get a claim for money.

But a claim for money is not injunction. It's not getting into government policy. All you can do is get the money that you're supposed to have, not stop wildly unconstitutional activities. There's a really deep issue here that you guys are, you know, raising, which has to do with the rule of law. And you may know a case Marbury versus Madison. Yeah. Very famous case, 1803, which has to. to do with President Thomas Jefferson's decision not to deliver a commission to a man named

Marbury to serve as a Justice of the Peace in the District of Columbia. And it went all the way up to Supreme Court. And Chief Justice Marshall said, the president can't not do what he's legally required to do under the law. And the courts can mandamus is the word, the president, to do. what he is required. And it was that decision up until Myers that was understood to underwrite Congress's ability to limit removal power because Marbury, the president was not authorized to remove him. He had a five-year term. And to tell the executive branch, the courts can tell the

executive branch to follow the law. Part of the problem with this unitary theory is it's really troubling Marbury and this foundation that suggests the president is, the law, has to follow the law, and the court's job is to make the president and the president's officers do that. And as we get away from that, you can have these hypotheticals where you're thinking, oh, they're just having the IRS not follow the law. Yeah. That is unthinkable to the 19th century.

In the 19th century, under Marbury, that's a plain case for mandamus, as Chief Justice Marshall said, having the IRS officers do nothing. But now we actually think that maybe that's what are we going to do? Because in fact, there all are these agencies not doing their jobs right now. And the courts aren't making them do what Congress said to do. And in that sense, we are sort of approaching a constitutional crisis. We have a degradation in rule of law, which is the idea that Congress writes laws and the rest of the government's job is to carry them out, not to come up with their own views about what the law should be.

Lev, did Hamilton write Marbury? Did Hamilton write the decision in Marbury? No, no, no. Well, I don't see how this is relevant. All right, that's a great place to leave it. Lev and Nathan, thank you so much for coming back. Yeah, thanks for having us. That was great.

Joe, always good to end on a constitutional crisis note. I love talking to Nathan and Lev. As you know, I love people who are just like, know a lot of facts and details, et cetera. And I think definitely when you're talking about deep constitutional history, you really want to, you know, we can all say, yeah, in principle, blah, blah, blah, independent monetary policy. When we're at this level, we really want to talk to people, and we did, who actually, like, know a lot of case law and know everything that brings to bear on this question. Yeah. I do think it's just wild to me that like a second amendment

case? Yeah, I would have, I did not influencing. But that is like, it's a wild stream. It's like, okay, here's an amendment, and we've found a way to modify it based on tradition. Therefore, here is another thing in the Constitution that because there's precedent for using Constitution in another case, or sorry, using tradition in another constitutional

case, we can revert to tradition here. I also thought it was very interesting Lev's point and like that, okay, the decision to for now keep Lisa Cook in her job was a five, four decision. But really only two people on the nine member Supreme Court actually think that this arrangement is tenable where you can fire someone from the FTC but not the Fed that easily. That does not, that is a good reason to think that like this is not a very statement. stable equilibrium. Yeah. And also just the idea that like basically put another target on the Fed's back. Yeah. Right. Like this is the only one. Everyone else is like subject to the whims of the president, I guess, and can be treated like an at will employee. But the Fed has to be, I guess, preserved in amber. Yeah. Because it's a precious antique. So you do like it stands out.

It stands out. It is interesting. Nathan's point sort of near the end about, I guess it's not surprising in America, probably in any country. I guess it's not surprising in America that like there is a history of, but it would be bad for financial markets or it would be bad for the economy setting aside the law as, you know, and look, I think it's good that I think thinking about outcomes are probably good. And as a way of like, to Lev's point of maintaining the legitimacy. of the judicial system, that they don't pretend to be completely ignorant of like, if we make this decision, will things start to go off the rails?

I'm going to end this conversation before you bring up the trillion dollar coin. No, I have nothing. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

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