The Wall Street reform package currently awaiting the return of Congress from the Fourth of July recess is packed with provisions that will remake the financial landscape. One element, though, which has gotten relatively little attention in the media, is a wild card: the authorization of a far-reaching audit of the Federal Reserve for the first time in the central bank's history.
The audit measure is retroactive -- it requires unprecedented disclosure of the identity of businesses, banks, hedge funds, foreign central banks or any other entity that was on the receiving end of Fed largess, and will reveal how much they got and on what terms. The information is required to be posted online within 30 days of the law's enactment.
Depending on what the audit turns up, the Fed could find itself back in the public eye and could face growing calls for reform. "I think once people see what the first audit discloses, they're going to want to see more," said Rep. Alan Grayson (D-Fla.), who, along with Rep. Ron Paul (R-Texas), shepherded the audit bill through the House. "We'll be back."
Paul first got involved in the effort to audit the Fed in the 1970s, he said, signing on to bills by Texas Democrat Henry Gonzalez, whose chief investigator has since written the definitive book on Fed opacity.
"It was one of the motivating factors for me to be involved in politics," Paul said of Fed secrecy. Grayson, meanwhile, was in his first term. "I did know when we started this that this was a bill that had been introduced over and over again for 26 years," said Grayson.
Popular interest in the Fed, which flowed from Paul's insurgent GOP presidential primary bid and was stirred by the central bank's expansive role staving off a financial-system collapse, which flooding banks with billions of dollars. Grayson's committee interrogations of Fed officials, from Chairman Ben Bernanke on down, have garnered millions of views online.
"It wasn't me lobbying that got all those signatures," said Paul. "It was the issue, how well it was popularized. I think certain Web pages were of tremendous help, both coming from the left and the right and the middle."
The key moment, said Grayson, came in the Financial Services Committee, when he and Paul were able to fend off a Fed-backed alternative in November from Democrat Mel Watt (D-N.C.) that was exposed as reducing Fed transparency rather than expanding it. Watt's camp sent around a letter backing his amendment signed by what they called a "political cross-section of prominent economists."
Seven of those eight economists, however, turned out to be affiliated with the Federal Reserve.
"We got the vote in committee, which was the crucial decision point," Grayson said. "The vote in committee was only possible because so many people had decided beforehand that they supported an audit."
Grayson had been lobbying his colleagues hard, passing around articles laying out the differences between the amendments and a letter of support from unions, liberal bloggers and conservative activists.
When the final committee vote came, Paul thought they'd been defeated because the top two rows of Democrats - the most senior members - were casting no votes. "The first one and a half [rows], we had no supporters," Paul told HuffPost. "I though, 'Oh, we're not getting any Democrats here.' But then when we got to the new Democrats, that's when we picked up our supporters."
Paul credits Grayson for whipping up support in the House. "I think he probably did more one-on-one than I did," he said. "I didn't do a whole lot more than I've done in the past, because most of the things I do are very philosophic and symbolic. But this one I probably did a little more asking, but I would say that not too many [members of Congress] came up to me on the floor and said, 'Sign me up'--a few did--but most of them it was they heard from their constituents and they called over and they got their name put on."
Once the debate moved to the Senate, the Fed and Treasury -- led by Tim Geithner, who was head of the New York Fed during the time the audit will review -- had the upper hand, said Grayson, because little work had been done to lay the ground. It didn't help that one of the lead sponsors was Sen. David Vitter, a Louisiana Republican who is intensely disliked by Democrats and has few friends on the GOP side. Sen. Bernie Sanders (I-Vt.) took the lead from the other side and eventually worked out a compromise with Sen. Chris Dodd (D-Conn.), who opposed an expanded audit. A vote that had been in question in the morning turned into a 99-0 route by the afternoon, as both the left and right backed Sanders' measure, leaving the center no cover to oppose it.
Assuring that Sanders' compromise got into the Senate bill meant that Fed audit backers would at least get something in conference, if not everything they'd gotten in the House.
The compromise only allowed one audit, but introduced the disclosure requirement. In conference, the House was able to beat back efforts to kill it and expand the provision to allow for ongoing disclosure. "We adopted the Senate's thinking about a need for a continuing disclosure requirement. And that was a constructive and, I think, potentially very productive element to what we've done," said Grayson.
Despite the compromise, Paul said he's supportive of the final measure. "The supporters who really, really want the whole thing all at once, a lot of them will probably be disappointed," he said. "I think PR-wise we get an 'A' for actually getting real exposure." On the specifics of the provision, he said: "We probably get a C-minus, because even with some of those provisions in there, where they're going to have to turn over some information, that doesn't mean it's going to be automatic... But they've agreed, and at least it's on the books, that they're supposed to tell us where they sent the money."
Grayson and Paul are worried about one loophole in the Senate's language that the House voted to fix, but the Senate rebuffed. The final language provides for disclosure of information about a lending program after the facility has been closed. The Fed argues that the facilities are temporary, so there will be no extreme delay, but Grayson wonders if they'll keep facilities open just to keep from disclosing information. Fed officials have insisted to Grayson they will not -- and note that many have already closed. "If there is any indication that the Fed is actually doing that, you will very quickly see legislation to prevent them from taking advantage of that loophole," Grayson said.