Trump announced that he was “firing” Lisa Cook, a distinguished economist, as a governor of the Federal Reserve Board. Paul Krugman wrote a new analysis overnight.
He posted:
Yesterday Donald Trump said that he had fired Lisa Cook, a member of the Federal Reserve Board of Governors. My wording is advisable: He “said” that he had fired her. I’m not a lawyer, but it seems clear that he does not have the right to summarily fire Fed officials, certainly on tissue-thin allegations of mortgage fraud before she even went to the Fed.
Cook has said that she will not resign. So at this point the immediate onus is on Jerome Powell, the Fed chairman. He has the right — I would say the obligation — to say, “Show me the legal basis for this action.” If Trump’s officials can’t provide that basis, he should declare that as far as he is concerned, Cook is still a Fed governor.
If Powell caves, or the Supreme Court acts supine again and validates Trump’s illegal declaration, the implications will be profound and disastrous. The United States will be well on its way to becoming Turkey, where an authoritarian ruler imposed his crackpot economics on the central bank, sending inflation soaring to 80 percent:
And the damage will be felt far beyond the Fed. This will mark the destruction of professionalism and independent thinking throughout the federal government.
So, about the legal authority. The Supreme Court, shamefully, has said that Trump has the authority to fire officials at will throughout the federal government, effectively eviscerating the principle of a professional civil service. But even the Court specifically carved out protections for Fed governors, saying that they can only be removed “for cause.”
Normally “for cause” means neglect of one’s job or malfeasance on the job. Yet even Trump’s people have made no claims that Lisa Cook has failed to fulfil her duties at the Fed or done anything wrong in her role as governor.
So what is the complaint about Cook? Trump says that she committed mortgage fraud by taking out two mortgages, claiming both properties as her primary residence, back when she was a professor at Michigan State, before joining the Fed.
Even if true, this accusation wouldn’t meet the standard for immediate dismissal from the Fed.
Furthermore, there’s no reason to believe Trump’s assertions that she committed fraud. So far, the Justice Department hasn’t even made any formal charges, let alone won a conviction. And we have no clear evidence of wrongdoing. As far as I can tell, the only evidence seen by outsiders shows that she took out mortgages on two properties, and the security instruments associated with these mortgages say that both properties are “principal residences.”
But as Adam Levitin at Credit Slips, says, “principal” isn’t the same as “primary”: someone who has a home in the city and a second place in the country might well consider both “principal” residences. Furthermore, there is no evidence that Cook even knew what the security instruments said — she may have done nothing more than promise to make her mortgage payments.
And a claim of mortgage fraud requires both that the borrower make a deliberate misrepresentation — as opposed to making a mistake on a complicated process — and that this misrepresentation caused financial harm to the lender. We’ve seen no evidence at all for either proposition.
This is not a case a nonpolitical Justice Department would even consider bringing to trial, or have much hope of winning. And again, it has no relevance at all to Cook’s work at the Fed, providing zero justification for dismissal “for cause.”
But of course Trump’s attempt to fire Cook has nothing to do with allegations of fraud. Her real crime, in his mind, is that she isn’t an obedient minion (oh, and that she’s a black woman.) The goal of his attempt to fire her is to replace independent Fed officials with lackeys who will take Trump’s orders — not just by getting rid of Cook but by intimidating everyone else.
As I wrote yesterday, the real message here is “If you get in our way we will ruin your life.”
The immediate test here is how the Fed itself responds. Cook is doing the right thing by refusing to resign. Jerome Powell now faces a moment of truth: Will he back her up, until or unless Trump demonstrates that he has the legal authority to fire her?
What if Trump uses some kind of force — deployment of U.S. Marshals? — to block Cook from continuing to work? Good. That will demonstrate to everyone the grotesqueness of this power grab.
And one way or another, this will end up in the courts, where we will find out whether our judicial system has any integrity left.
What will all of this mean for financial markets? The markets keep shrugging off the Trump administration’s lawlessness, and maybe they’ll do it again. But really, it doesn’t matter. This isn’t, ultimately, about monetary policy. It’s about whether we are still a nation of laws.