President Obama Is wrong, really wrong, about the Federal Reserve.
A remarkable left-right congressional coalition – which includes everyone from true-blue progressives like Florida Congressman Alan Grayson to bleed-red conservatives like Texas Congressman Ron Paul — has formed to demand an end to Fed secrecy.
In particular, members of the coalition want to force the Fed to identify banks that took trillions of dollars in secret subsidies.
Unfortunately, the Obama administration has taken the side of elite and irresponsible Wall Street interests, as well as Fed insiders, to oppose open discussion of what is being done behind closed doors and without congressional consent with taxpayer funds.
"When it comes to openness vs. secrecy, Wall Street vs. Main Street, taxpayers vs. the big bankers, I am sorry to say that the White House has come down on the wrong side," says Vermont Senator Bernie Sanders, an independent who has long been critical of the Fed and of the bailout of big banks with tax dollars. "With growing support for this amendment from both the left and right, I hope that the administration reconsiders."
No one who knows Washington is holding their breath for Obama or Fed-friendly Secretary of the Treasury Tim Geithner to do the right thing.
The Fed will only be held to account if Congress acts.
For that reason, Sanders is offering an amendment to the weak financial services reform legislation that’s been proposed by Senate Banking Committee chair Chris Dodd, D-Connecticut, and is backed by the White House.
The Sanders amendment would require the Fed to name big banks that pocketed the trillions of dollars in secret subsidies – even as, in many cases, it now appears that those banks were claiming to have repaid acknowledged bailouts.
Sanders is working in conjunction with Paul, who has succeeded in winning broad support in the House for Fed accountability. Sanders’ office notes the "unlikely pairing" of a socialist from Vermont and a libertarian from Texas, arguing that: "Their legislation to audit the Fed is supported by a historically rare convergence of advocates and academics from the left, the right and the mainstream of American government and politics."
But the coalition is not so unlikely as rigid pundits might imagine.
There have always been forces on the left and right that have recognized a shared need for openness and accountability – especially when it comes to maintaining openness with regard to the financial system and the extent to which taxpayer dollars are being used to prop it up. Wisconsin saw it in the 1920s and 1930s, when rural Republicans joined with Milwaukee Socialists to battle the big banks that both groups thought were too controlling of the economy.
The nation’s largest labor union federation, the AFL-CIO, is on board, with a statement that declares: "The Senate financial reform bill includes some positive measures to address the lack of transparency at the Federal Reserve, but much of the information regarding details of who received this financial assistance during the recent crisis will not have to be disclosed. Working people want to know who benefited from the liquidity provided by taxpayers during the crisis and this amendment will ensure that we receive that information."
So, too, are economists and scholars led by Center for Economic and Policy Research co-director Dean Baker, Professor James K. Galbraith of the University of Texas, Austin; author Nomi Prins and Thomas Ferguson, a political science professor at the University of Massachusetts, Boston, and a senior fellow at the Roosevelt Institute.
"Since the start of the financial crisis, the Federal Reserve has dramatically changed its operating procedures. Instead of simply setting interest rates to influence macroeconomic conditions, it rapidly acquired a wide variety of private assets and extended massive secret bailouts to major financial institutions," read a recent letter signed by the economists and their allies.
That letter notes that the Fed balance sheet expanded to more than $2 trillion, along with implied and explicit backstops to Wall Street firms that could cost even more. This is not about the $700 billion in Wall Street bailouts approved by Congress in 2008 under the Troubled Asset Relief Program, who were identified. The information that the Fed is withholding involves much, much more taxpayer money.
We all have a right to ask, as the economists wrote in their letter: "Who received the money? Against what collateral? On what terms and conditions? The only way to find out is through a complete audit of the Federal Reserve."
The latest expressions of support for the Sanders’ amendment join those of the 250 organizations united under the umbrella of the Americans for Financial Reform coalition. Conservative groups such as Americans for Tax Reform; Citizens Against Government Waste and the Paul-friendly Campaign for Freedom are speaking up, as well.
The Sanders amendment has gained this broad support because it is so very necessary that Fed accountability be made a part of financial reform. Both the U.S. House and Senate have asked the Fed to reveal the identities of financial institutions that collected hidden loans and guarantees after the economic meltdown of 2008. Two federal court decisions have joined the push.
Unfortunately, Fed chair Ben Bernanke has rejected requests for disclosure. Indeed, Bernanke and his lieutenants are currently fighting federal court judgments ordering them to divulge information sought in Freedom of Information Act lawsuits by news organizations such as Bloomberg News.
The Fed is injecting U.S. tax dollars in the accounts of big banks.
Sanders is right when he says: "This money does not belong to the Federal Reserve. It belongs to the American people, and the American people have a right to know where their taxpayer dollars are going."