Memo to the Senate: Stop Secret Bailouts by the Fed
Sometimes, you just know that you've struck a nerve. I knew it early last year, when a clip of my questioning the Inspector General of the Federal Reserve over the Fed's balance sheet became the most viewed Congressional hearing in YouTube history. The Fed had lent out around $1 trillion, and I wanted to know what happened to the people's money. So did the people.
They were angry at the Fed, and they showed it. And because of that righteous anger, the financial reform bill in the House contains a provision to audit the Federal Reserve fully. If it passes the Senate, we will finally know to whom the Fed lent our money, how much, and what little we got in return.
So it's up to the Senate. The Senate has a provision in its reform bill that purports to audit the Fed. But, it really doesn't do anything of the sort. I'm going to run down the details for you, and reprint the legislative language so you can read it yourself. But the story is simple; if the House version of a Fed audit passes, we will finally know to whom the Fed lent our money. If the Senate version passes, the Fed can continue to make sweetheart loans to whomever it wants, without telling Congress or the public.
The way Congress oversees complicated government agencies is through the Congressional audit arm, the Government Accountability Office (GAO). The GAO does the actual auditing, and gives that information to Congress, which then holds hearings and makes policy. The House bill grants the GAO the authority to audit the Fed, and then releases that information to Congress with a six-month delay, to prevent traders from gaming the system.
The Senate version only allows the GAO to audit a certain part of the Federal Reserve, its emergency lending facilities. The GAO already has some of that authority. Amazingly, the Senate version forces the GAO to withhold this information from the public, and Congress, for as long as the Federal Reserve chooses.
The details, and the specific legislative language, are below.
Limited Audit Authority
What the Senate bill allows:
- The Senate language slightly expands existing authority to the GAO to audit only the emergency lending authority in section 13(3) of the Federal Reserve Act, but only for specific purposes.
- The Senate language would grant the GAO authority to audit the TALF program.
What the bill does NOT allow:
- The Senate language does not allow audits of the mortgage backed security purchase program, a $1.25 trillion program that at this point comprises the bulk of the Fed's balance sheet. This program includes Freddie and Fannie backed debt.
- The Senate language does not allow audits of possible losses on foreign currency swap lines, of which there were more than $500 billion at the height of the crisis. This includes unlimited credit lines granted to central banks all over the world, solely through at the discretion of Federal Reserve and without the input of any elected official or the State Department.
- The Senate language does not allow audits of open market operations, where there is ample room for errors, market manipulation, and insider trading violations.
- The Senate language does not allow audits of possible losses on securities acquired through non-section 13(3) facilities. This includes looking for possible losses, seigniorage, political conflicts and costs to the Treasury.
Federal Reserve Secrecy
- In the Senate version, all audits must remain redacted. The GAO can't even tell Congress to whom the Fed is lending money, the amounts it is lending, or any details about collateral or assets held in connection with any credit facility.
- The GAO can never release a full version of any audit unless the Federal Reserve first chooses to shut down the audited credit facility.
- Once the Federal Reserve shuts down the authority for the credit facility, the GAO still has to wait a year before it can release details about that facility. If the Fed simply chooses to stop making loans, but does not eliminate the authority to make loans, the GAO has to wait three years before it can release a full report. The Fed can at any point during this period choose to restart the facility, and thereby prevent the release of a full report.
See for yourself. The legislative language in the Senate draft is here.
(snip)
http://www.zerohedge.com/article/alan-grayson-discloses-dodd-bill-covertly-eliminates-already-passed-legislation-requiring-fuThe Youtube he was referencing:
Alan Grayson (High Quality Version): Is Anyone Minding the Store at the Federal Reserve? http://www.youtube.com/watch?v=cJqM2tFOxLQ&feature=channelall bold emphasis mine.
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