A bipartisan pair of senators opened a second front in the fight to bring transparency to the Federal Reserve on Wednesday, introducing an amendment to the Wall Street reform bill that would require the central bank to comply with two federal court orders requiring it to disclose how trillions in taxpayer dollars have been used.
The Fed has appealed both rulings.
The amendment, cosponsored by Sens. Byron Dorgan (D-N.D.) and Charles Grassley (R-Iowa), is the second assault on the Fed. The first was launched by Sen. Bernie Sanders (I-Vt.), who is pushing an amendment that reflects audit language passed by the House.
With the White House strongly opposed to an audit of the Fed, three economists, including two who had previously worked on oversight of the Fed, pressed the administration to drop its "apocalyptic opposition" to the amendment. The Wall Street Journal reported earlier that the administration "would fight to stop it at all costs."
Rep. Alan Grayson (D-Fla.), a cosponsor of the House measure, said that Treasury Secretary Tim Geithner's opposition represents a conflict of interest. "He was the head of the New York Fed for years and years. This audit would apply to him. And the actions he took -- which he can now take in secret and, when this bill passes, will no longer be secret -- we'll be able to see and understand the decisions that he made that, among other things, put huge amounts of bailout money into the hands of private interests," said Grayson on ABC's "Top Line" Tuesday. "It's one of the biggest conflicts of interest I've ever seen."
The letter from the economists lays out how resistant the Fed has been to transparency over the past several decades. Each time it was forced to open up, however, none of the cataclysmic market disruptions that had been predicted came to pass and the new scrutiny became an accepted and standard part of Fed activity.
Though more than 50 senators are on record previously supporting a Fed audit, knees are starting to weaken. Sens. Richard Burr (R-N.C.), Saxby Chambliss (R-Ga.), Claire McCaskill (D-Mo.) and Patty Murray (D-Wash.), previous supporters, all now say they're on the fence. Senate Majority Leader Harry Reid (D-Nev.) was asked Wednesday how he planned to vote and sidestepped the question, saying that he has been a longtime critic of the Fed but had yet to study Sanders' language. "I've been involved in this deal for a long, long time," he said.
Reid pushed for a limited audit of the Fed in 1996 and what the GAO found troubled him. "For the first time in history, we have peeled back the cloak that shrouds operations at the Federal Reserve," Reid said in a statement at the time. "For years, the closed-door nature of such a large and influential public entity has concerned me. The GAO investigation reveals a spending free-for-all with no one keeping check. The nearly $4 billion soared reserve fund, along with increasing bloat, perks, and benefits begs the question of who is minding the shop. With this report, I believe we will begin to see the 'blank check mentality' at the Fed brought under control and the 1913 accounting practices modernized for the 21st century."
That mentality, however, has only been reinforced. The Fed has, over time, objected to holding hearings on monetary policy, releasing transcripts of meetings and releasing directives after those meetings. That resistance was broken and each release is now standard practice.
Grayson said that the Fed's objections are easily understood. "The Fed doesn't want to be audited. Who does? Do you want to be audited? I don't want to be audited, but sometimes it's necessary," he said.
From the letter, signed by Robert Auerbach, James Galbraith and Dean Baker:
Our careers have been tied to the cause of establishing a reasonable, forthcoming dialogue between the Federal Reserve and Congress on monetary topics. At every stage, for 35 years now, the Federal Reserve has resisted.
In 1975, the Fed resisted regular hearings on the conduct of monetary policy. They were nevertheless established, under H. Con. Res 133, and written into the Federal Reserve Act in
1978. Those hearings continue today, and are widely considered a very substantial policy success- so much so that when the legal mandate briefly expired, the hearings continued without one.
Once the hearings were established, the Federal Reserve resisted giving to Congress its economic forecast for the year ahead -- a resistance that was only broken by disciplined questioning at the Banking Committee. Today, that information is considered innocuous.
In the late 1970s, the Fed resisted releasing the policy directive at the end of each FOMC meeting. It preferred the silly practice of waiting until after the following meeting -- even though everyone knew immediately from the movement of the Federal Funds rate what the directive was. Today, the announcement is made immediately, and nobody thinks twice about it.
In the 1980s, the Federal Reserve pretended for years that it was not keeping verbatim minutes of the FOMC meetings. This deception eventually caused major embarrassment. Now the minutes are released after a five-year delay -- and the only consequence is that from time to time the public becomes aware of incompetence or deception that the Federal Reserve would prefer to conceal. An example was in the press earlier this week, as you surely know.