Right now, a bill of the utmost importance languishes, blocked in committee by a procedural move, even though it has accumulated broad bipartisan support and an astonishing 270 co-sponsors in the House of Representatives. Unlike so many bills that go through Congress, it does exactly what its name says. This bill is H.R. 1207, the Federal Reserve Transparency Act of 2009. This bill would allow and require the Government Accountability Office to do a full and complete audit of the currently unaudited and unaccountable Federal Reserve, the United States' central bank and the most powerful financial entity in the world. Upon completion of the audit, the GAO would present a detailed report to Congress along with such recommendations as the director of the GAO may deem appropriate. The bill does nothing more and nothing less. That the Federal Reserve must be made accountable for its actions is undeniable.
A recent article in Der Spiegel, one of Europe's most respected magazines, demolishes the notion that the catastrophic financial meltdown last October could not be predicted far enough in advance to avert it. The article, "Global Banking Economist Warned of Coming Crisis," tells how the Bank of International Settlements monitored the toxic brew building up inside our financial system and how the BIS's chief economist briefed the Federal Reserve about it six years before the crisis hit. The Federal Reserve did nothing to try to prevent the cataclysm of "nuclear mortgages" and "powder keg" of toxic securities that Chief Economist William White warned about. Dr. White's predictions came to pass with startling accuracy, and we are now all paying the price.
The Fed demonstrated how little it understands this financial crisis by flatly denying there could be such a thing as a housing bubble. Moreover, its former chairman, Alan Greenspan, extolled the virtues of subprime ARMs on multiple occasions and publicly advised people to buy houses with them at exactly the worst possible time. This same Fed, albeit with a different chairman, now thinks it has the institutional knowledge to take extraordinary action to try to contain the damage.
While the public brayed about the relatively paltry AIG bonuses, the Fed expanded its balance sheet by a completely unprecedented $2 trillion. How the Fed got that money or where it went is unknown to anyone outside of the Fed, except that it has been used to bail out Wall Street through an opaque alphabet soup of credit facilities. Moreover, the Fed has bought up massively leveraged toxic mortgage securities and CDS derivatives from AIG that dwarf the bonuses by several orders of magnitude and secreted them off its balance sheet in two of the Maiden Lane facilities. The three Maiden Lane facilities contain the financial equivalent of black holes, the absolute worst of the toxic securities and derivatives that brought the world's financial system to its knees and that devour every effort to bail it out. Urge your Senators and Representative in the strongest possible terms to audit the Fed, thereby making it accountable to Congress and the American people. Your children will thank you.
The GAO is expressly forbidden from auditing the following four areas of the Federal Reserve's operations, which when taken together comprise basically everything of importance that the Fed does in its role as the United States' central bank:
(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection.
David J. Persky
Jul 17 2009 - 5:36pm