Update, May 11, 2010: The Senate adopted the Sanders amendment, 96-0, which does not indicate its meaningless. In these weird times, senators don’t want to stand for the Fed if they can avoid it.

The weirdness of this political system is reflected in the fact that it takes a Socialist senator from Vermont, Bernie Sanders, and a libertarian Republican from Texas, Rep. Ron Paul, to beat the banking lobby. The Democrats are making a show of "Wall Street reform" but choking on the tough issues. Republicans are in the tank, as expected, though nervous about the public fury.

Sanders and Paul, however, found an opening with their bill to force a GAO audit of the sacrosanct Federal Reserve. This is a big deal, much bigger than most imagine. Congress has sputtered for years about the Fed’s imperious secrecy but never found the nerve to do anything. The Sanders-Paul audit bill, if it passes, will only be a first breach in the wall, but it promises to keep alive popular demands for more fundamental reforms.

Rep. Alan Grayson, the first-term Florida Democrat who partnered with Paul to pass the House version, has a distinctive way of explaining things with brutal clarity. "Fed Chairman Ben Bernanke doesn’t want an audit because Ben Bernanke doesn’t want to be audited," Grayson said. "Treasury Secretary Tim Geithner, the former head of the New York Fed, doesn’t want an audit because Tim Geithner doesn’t want to be audited."

Forget all the official blabber about "Fed independence." The central bank has never been independent from the most powerful bankers it is supposed to regulate. The everyday relationship is incestuous. What the Fed and its main constituency of Wall Street power houses really fear is that people will get a better look at their corrupt private dealings. During the financial crisis, the central bank handed out something like $2 trillion in emergency loans and other goodies. All efforts by Grayson and others to find out who exactly got this money were rebuffed by the Fed governors. Bloomberg sued for disclosure and won in Federal court. The Fed is appealing the ruling.

If Sanders-Paul prevails, the GAO will audit case-by-case and the facts are sure to reveal new scandals of cozy deal-making. The Fed did a backdoor bailout of its own without official approval from Congress or anyone—three or four times larger than the TARP bailout approved by Congress.

Grayson flavorfully explained: "When we finally see what the Federal Reserve has been up to, the public will be outraged," he said. "The Federal Reserve’s arguments for secrecy are—and always have been—a ruse to cover up the handing out of billions of dollars like party favors to the Wall Street institutions who brought the American economy to the brink of ruin."

When the audit bill passed the House last year, I am sure administration officials assumed they could snuff it the Senate. Senator Sanders instead played a shrewd hand, skillfully building right-left support. But this measure is actually not an ideological issue nor even "populist" revolt. It’s "good government reform" that every senator would support if a lot of them were not in tank to the bank lobby or intimidated by the mystique of the Fed/ .

When Sanders had clearly developed majority support, Senator Chris Dodd, the banking chair, sued for compromise. Sanders gave up some ground (and was instantly denounced as a "sellout’ by rightwing blogger) but the limited compromise was not fatal (and might still be repaired in conference negotiations with the House). The most important thing Sanders gave up was authorization for ongoing audits every year. Now it will be one time only. But Sanders did get agreement the Federal Reserve would immediately post its "party favors" on the web for all to investigate.

This victory—if and when it’s complete—is a major marker on the road to much deeper reform of the central bank—its sheltered monetary policy, the concentrated power of the financial system and the cowardly habits of Congress. This year’s reform, in other words, is only the beginning. More facts will insure that the public does not lose its anger but instead raises its demands.