Momentum
Builds For Ron Paul's "Fed Transparency" Act Joe Weisenthal -
May. 21, 2009, 10:47 AM
For
years, Ron Paul has been a lone voice in Congress, questioning
the wisdom of the Federal Reserve -- both its various chairmans
and the institution itself. His dogged questioning of Alan
Greenspan, and then Ben Bernanke, make for great TV (otherwise,
those hearings are total snoozefests).
But now, as America wakes up to its dire financial situation
and average people talk about things like "fractional
reserve lending", the gold standard, and Zimbabwe-like
inflation, he's finally getting some momentum.
It's baby steps, of course. Paul is the sponsor of the Federal
Reserve Transparency act of 2009, which demands a GAO audit
of the Fed, and a full report to Congress sometime next year.
And it's gaining steam. It already has 175 co-sponsors in
the House, and now a major Democrat, Rep. Alan Grayson (ironically,
the same one who's proposing that stupid France vacation bill
we mentioned this morning has joined on, and is urging his
party colleagues to join them.
Zero Hedge has a copy of the letter he's sent out, and if
you're so moved (which you should be), you can sign the petition
here:
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Bring Some Accountability to the Federal Reserve
Dear Colleague,
I write to ask you to co-sponsor HR 1207, the Federal Reserve
Transparency Act, which would give the Government Accountability
Office the authority to audit the Federal Reserve and its
member components and require a report to Congress by the
end of 2010.
The Federal Reserve System operates as the central bank for
the United States, managing the economy’s money supply and
overseeing the banking system. Until recently, the Fed has
not picked winners and losers when distributing money, nor
has it brought credit risk onto its balance sheet. It has
slowed or stimulated the economy by raising or lowering interest
rates. Since March 2008, the Fed has resorted to using its
emergency powers to pick winners and losers, and to take massive
credit risk onto its books. Since last September, the Fed’s
balance sheet has expanded from around $800 billion to over
$2 trillion, not including off-balance sheet liabilities it
has guaranteed for Citigroup, AIG, and Bank of America, among
others. The bank is also ‘monetizing’ the debt of the United
States Government by purchasing massive amounts of agency
and Treasury bonds. An audit is the first step in bringing
this unaccountable system under the control of the public,
whose money it prints and disseminates at will.
The Federal Reserve is an odd entity, a public-private chimera
that controls the US monetary system and supervises the banking
system. The system is governed by a Board of Governors, with
twelve regional reserve banks that serve a supporting role.
While the Governors are appointed by the President with confirmation
by the Senate, the regional Reserve Banks have boards of directors
chosen primarily by private banking institutions. Right now,
for instance, the CEO of JP Morgan, Jamie Dimon, serves on
the Board of Directors of the New York Federal Reserve Bank,
as did Goldman Sachs Director Stephen Friedman.
This creates striking conflicts of interest and unseemly
appearances in the management of what is ultimately the public’s
money.
Consider:
JP Morgan’s CEO was a board member of the New York Fed
even as he negotiated on behalf of JP Morgan with the New
York Fed for a $29 billion bridge loan to allow his company
to take over Bear Stearns.
New York Fed and Goldman Sachs board member Stephen Friedman
purchased 37,300 shares of Goldman Sachs stock in December
at the same time as Goldman received permission to convert
to a bank holding company regulated by the Federal Reserve.
Friedman at the time was also overseeing the selection of
a New York Federal Reserve President to replace Tim Geithner,
and the New York Fed ended up hiring another alumni from
Goldman Sachs.
According to the bank’s website, the two “class B” directorships
of the New York Fed that are supposed to represent the public
are vacant.
Enron’s Jeff Skilling was on the board of the Dallas Federal
Reserve Bank.
Criticism of banker influence and control of our monetary
system is not new. However, the urgency of the financial crisis
and the actions of the Fed picking investment bank winners
and losers have changed the nature of the criticism. The Senate
just passed a non-binding resolution requiring more transparency
at the Federal Reserve in its Budget Resolution.
Still, neither the GAO nor the Federal Reserve Inspector
General has audited the books of the Federal Reserve or its
regional banks. The Federal Reserve has refused multiple inquiries
from both the House and the Senate to disclose who is receiving
trillions of dollars from the central banking system. The
Federal Reserve has redacted the central terms of the no-bid
contracts it has issued to Wall Street firms like Blackrock
and PIMCO, without disclosure required of the Treasury, and
is participating in new and exotic programs like the trillion-dollar
TALF to leverage the Treasury’s balance sheet. With discussions
of allocating even more power to the Federal Reserve as the
‘systemic risk regulator’ of the credit markets, more oversight
over the central bank’s operations is clearly necessary.
The net effect of recent actions has been to isolate financial
policy-making entirely from democratic input, and allow the
Treasury Department to leverage the Federal Reserve’s balance
sheet to spend money it cannot get appropriated from Congress.
The public does not know where trillions of its dollars are
going, and so has no meaningful control over the currency
or this unappropriated “budget”. The extraordinary size of
these lending facilities combined, the extreme secrecy, and
the private influence is a dangerous seizure of Congress’s
constitutional prerogative to appropriate public monies and
control the currency.
An audit of the Federal Reserve may not be sufficient to
control this sprawling system or bring it back into balance,
but it is a start. The public has a right to know to whom
the US government is lending trillions of dollars. Dancing
around this issue with technocratic terms like ‘increasing
liquidity’ and ‘private financial intermediation’ is preventing
a full and long overdue public debate on the role of the Federal
Reserve and the influence of private banking interests in
the governing of our economy.
I encourage my colleagues to support H.R. 1207, so that we
can bring some transparency to our banking system and allow
the public to have a real debate over the fundamental direction
of our nation’s political economy.