Vermont Senator Bernie Sanders has for months been leading the charge to expose the sweetheart deals the Federal Reserve has worked out for multinational banks and corporations at the same time that working Americans, small businesses, local governments and schools boards struggle to stay afloat financially.

Sanders has tried to make the point that it is simply absurd for the Fed to bail out foreign firms and bad banks and to provide them with low-interest loans at the same time that they are reaping massive profits – and at the same time that federal, state and local governments are supposedly broke.

The Obama White House and other members of Congress grudgingly went along with a proposal Sanders made, as part of last year’s Wall Street reform legislation, to force the Fed to reveal its previously secret bailouts and backroom deals. But, for the most part, official Washington has been slow to share the Vermont senator’s outrage.

They may change now that Sanders is exposing what may be the most unsettling Fed deal yet.

On Thursday, the senator asked Federal Reserve officials to explain why they provided more than $26 billion in credit to an Arab intermediary for the Central Bank of Libya. According to a review by Sanders’ office, the Fed made at least 46 emergency, low-interest loans to the Arab Banking Corp., in which the Central Bank of Libya owns a 59 percent stake.

Sanders is particularly interested in learning why the Libyan-owned bank and two of its branches in New York City were exempted from sanctions that the United States imposed several weeks ago on Libyan businesses controlled by Colonel Moammar Gaddafi and the dictator’s associates.

 At the time the sanctions were imposed, President Obama said: “The Libyan government’s continued violation of human rights, brutalization of its people, and outrageous threats have rightly drawn the strong and broad condemnation of the international community. These sanctions therefore target the Gaddafi government, while protecting the assets that belong to the people of Libya.”

But what’s the point of sanctions if they don’t crack down on the dictator’s bank?

“It is incomprehensible to me that while creditworthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya,” says Sanders.

The senator is also asking Treasury Secretary Timothy Geithner – a long-time Fed retainer — to explain the Arab Banking Corp. was borrowing money at almost zero interest from one arm of the government, the Fed, at the same time the Treasury Department was borrowing money at a higher interest rate. 

Good questions these. And Bernie Sanders ought not be the only one asking them. Congress should be grilling Geithner and Fed Ben Bernanke on the Fed’s Libyan connection and why sanctions don’t seem to apply to bankers with friends on Wall Street — and in Washington.