Forcing audit of Federal Reserve?

 

By Don Michak
Journal Inquirer

Published: Tuesday, April 27, 2010 10:08 AM EDT

 

Lost in the Senate fight over financial derivatives, corporate governance, and “banks too big to fail,” is a less-publicized ruckus pitting the primary author of the regulatory overhaul, Senate Banking Committee Chairman Christopher J. Dodd, against critics of the U.S. Federal Reserve.

At issue is what lawmakers call “transparency” and whether the Connecticut Democrat quietly moved to stave off a proposed audit of the nation’s notoriously secretive central bank, which played a huge role in the government’s big bank bailout.

A bill requiring the Government Accountability Office to fully audit the Fed and after six months release its findings to Congress passed the House last year. But Dodd is said to have opposed that idea and instead allowed a more restrictive audit proposal into his bill.

The co-sponsor of the House measure, Rep. Alan Grayson, D-Fla., has charged that while Dodd’s version purports to audit the Fed, “it really doesn’t do anything of that sort.”

“If the Senate version passes, the Fed can continue to make sweetheart loans to whomever it wants, without telling Congress or the public,” he added.

A freshman Democrat from a swing district in Orlando, Grayson helped overcome opposition from the Fed, the Treasury Department, and banking lobbyists to win passage of the proposal long pushed by Rep. Ron Paul, the former Republican and Libertarian presidential candidate from Texas. He reportedly did so after winning support from an alliance of labor unions, liberal economists, and bloggers.

Grayson in a memo to the Senate and made public by the online Huffington Post said Dodd’s bill would allow an audit of the Fed’s $1 trillion program supporting the issuance of certain asset-based securities and “slightly” expands the authority to audit some emergency lending, “but restricts it to very specific purposes.”

He added, however, that Dodd’s measure would “not allow the GAO to look into the Fed’s massive purchase of toxic assets, its hundreds of billions in foreign currency swaps with other central banks, or its open market operations, among other restrictions.”

The audit proposal Dodd allowed in the bill was authored by Sen. Jeff Markey, D-Ore., who told the Huffington Post that he agreed with Grayson’s analysis and, “We need to go even further to audit the Fed’s standing programs.”

Dodd made no mention of the controversy Monday during an appearance at the state Capitol in Hartford, when he predicted the Senate eventually would pass the regulatory overhaul, perhaps after more negotiations with Republican leaders.

Similarly, neither Dodd’s press secretary nor the communications director of the Senate Banking Committee responded Monday when asked for comment.

But a spokesman for Sen. Bernie Sanders, I-Vt., said Monday that Sanders was likely to attempt amending Dodd’s bill to effectively add the language of the House measure.

The aide referred to a recent statement by Sanders, in which he suggested that “in terms of transparency, Dodd takes us a little step forward, but nowhere far enough.”

“We need more transparency at the Federal Reserve,” Sanders said. “I asked Ben Bernanke which financial institutions had received trillions of dollars in zero-interest loans during the bailout, but he refused to tell me — and that is information that the public has the right to know, as well as other information about the Fed.”

Sanders’ amendment would require the GAO to conduct an “independent and comprehensive audit” within a year of the enactment of the financial overhaul, and require the agency to detail its findings and conclusion to the Congress within three months.

It also would require the Fed within one month of the enactment to disclose the names of the financial institutions and foreign central banks that received financial assistance since the start of the recession, how much they received, and “the exact terms of this taxpayer assistance.”