Obama Administration beats down efforts to audit the Federal Reserve Board and control big banks

[Better Believe It]

Plan for Congressional Audits of Fed Dies in Senate
By SUDEEP REDDY and MICHAEL R. CRITTENDEN
May 7, 2010

Last-minute maneuvering in the Senate allowed the Federal Reserve to sidestep legislation that would have exposed its interest-rate decision-making to congressional auditors.

Pressure from the Obama administration led Senate lawmakers to alter a provision pushed by Sen. Bernie Sanders (I., Vt.) that was gaining momentum despite opposition from the Treasury and the Fed. It would have largely repealed a 32-year-old law that shields Fed monetary policy from congressional auditors.

"At a time when our entire financial system almost collapsed, we cannot let the Fed operate in secrecy any longer," Mr. Sanders said. "The American people have a right to know."

But Fed Chairman Ben Bernanke, while insisting on a commitment to "openness" at the Fed, said in a letter to Congress the Sanders measure would "seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation."

Before the last-minute compromise, the Fed's foes appeared to be winning, and got a major boost when Senate Majority Leader Harry Reid (D., Nev.) said he would side with Mr. Sanders.

Mr. Bernanke, meanwhile, returned to Washington Thursday afternoon after a morning speech in Chicago to continue pressing for changes to the Sanders bill. In the past few days, Mr. Bernanke has spoken to at least a half-dozen senators to argue the Fed's case that the bill would deeply damage the Fed's credibility and ability to make tough decisions about interest rates.

At least half a dozen Obama administration officials joined the blitz, including Treasury Secretary Timothy Geithner—a former Fed official—and Rahm Emanuel, the White House chief of staff. Administration aides credited Mr. Dodd with pushing back against the original amendment and developing an acceptable alternative.

The Senate beat back another amendment with populist tinges, defeating 61-33 a provision that would have put strict caps on the size of the nation's banks. Offered by a bloc of liberal Democrats, it would have capped at 10% the limit on the nation's total insured deposits any single bank holding company could carry. It would have also set a 6% leverage limit for banks and capped their non-deposit liabilities at 2% of U.S. gross domestic product.

Read the full article at:

http://online.wsj.com/article/SB10001424052748704370704575228164133105390.html?mod=WSJ_business_EconomyNewsBucket

[GreenPartyVoter]

1. This makes me so sad.

[Name removed]

2. Deleted message

Sub-thread removed by moderator. Click here to review the message board rules.

[LiberalAndProud]

3. See, here's the thing, Mr. Bernanke ...

Your credibitility ...

I just don't know how to tell you this, Mr. Bernanke. What you fail to understand is that the Fed has no credibility. You can't break what you don't have.

"deeply damage the Fed's credibility "





my ass.

[SpartanDem]

4. They beat it down by agreeing to it?

The WSJ heading is in misleading and I have to wonder why you left off the third paragraph of the article. As t

The compromise, endorsed by Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and the Treasury, would require the Fed to disclose more details about its lending during the financial crisis. It would also require a one-time audit of those loans and a one-time review of Fed governance. A formal vote was pushed back until next week.



Then there is TPM coverage of the story offers more clarity either way it is clear that Obama didn't beat back an audit of the Fed.



Could Sen. Bernie Sanders (I-VT) shake off powerful opponents of his proposal to audit the Federal Reserve? It looks like he's about to do just that. By making a few changes to his financial reform amendment, Sanders has won support from Senate Banking Committee Chairman Chris Dodd, and Majority Leader Harry Reid, and seems more poised than ever to prevail. The Senate should vote on his amendment later today.

In order to allay some of the White House's and the Fed's concerns, Sanders has agreed to limit the scope of what the Government Accountability Office would be allowed to audit--but his plan will still require thorough review of all the Fed's emergency lending, beginning December 1, 2007.

"The way you would do it is to make sure that the audit is not looking at the open market policy, where you're not looking at how interest rates are set," Sen. Bob Corker (R-TN) said in response to a question from TPMDC, after a floor vote on a different amendment. "What you're doing is looking at the actual financial transactions that the Fed is involved in."

http://tpmdc.talkingpointsmemo.com/2010/05/sanders-fed-audit-amendment-likely-to-prevail.php?ref=fpa

[amborin]

6. those are weak and ineffective provisions; the Fed had been

giving $$$$ to banks before TARP, w/o congressional oversight or approval; the Fed needs a legitimate audit, not some half-baked query

[Better Believe It]

7. Please read the article before commenting on it. They beat down and defeated two amendments.

The Sanders amendment and the "provision that would have put strict caps on the size of the nation's banks".

[HughMoran]

8. lol

Stop trying to rain on the parade of intellectually dishonest negativity.

:rofl:

[ima_sinnic]

5. Obama and his DLC corpo stooges sided with big money, Wall St., and the pigs?

what else is new?

[Bluebear]

11. You just want Palin to win as President!!!!!1

:cry:

[notadmblnd]

9. So is Bernake making threats?

Why will inflation and interest rates rise if the Fed is audited?

[fascisthunter]

10. this will harm him in the next election

bad fucking move...

[alc]

12. if we knew what's going on

it "would deeply damage the Fed's credibility"

If the IRS audits me and I use that line I wonder if they'll back off, or assume I did something with the numbers that I wasn't supposed to.

[LiberalAndProud]

13. This is the part I don't understand.

Before the last-minute compromise, the Fed's foes appeared to be winning, and got a major boost when Senate Majority Leader Harry Reid (D., Nev.) said he would side with Mr. Sanders.


Why compromise if you're winning?

[ima_sinnic]

14. yes, they should have passed it in Congress and let Obama veto it

let the world see whom he REALLY cares about and how our system of "democracy" really works.

[HughMoran]

15. Since you want to discuss this...

The original Sanders measure stated that it shouldn't be "construed as interference in or dictation of monetary policy." But the Fed and administration warned that would allow auditors to interview Fed policy makers and staffers about monetary policy, thereby allowing congressional critics to pressure the Fed and undermine its independence.

Like most other capitalist democracies, U.S. politicians have given the central bank considerable latitude to control interest rates on the theory that elected politicians are prone to keep rates too low to get more growth during their terms at the cost of more inflation later. Although sponsors of legislation insisted that wasn't their intent, the Fed and its allies said otherwise.

"It's a chilling kind of circumstance," former Fed Chairman Paul Volcker, an Obama adviser, said in an interview. "The more you have no clear boundaries about what's appropriate and what's inappropriate, you castrate the decision-making process. That's true for any organization, but it's particularly true when you get into the sensitivities of monetary policy that can generate speculative waves in financial markets and speculation in people's minds," said Mr. Volcker, who also urged lawmakers to eliminate the audit provision.

Anil Kashyap, an economist at the University of Chicago's Booth School of Business, stressed that independent central banks need to be insulated from politics and make decisions several months ahead of expected trends.

"There are times when you have to start raising interest rates before the economy's recovering. If you're going to get audited while you do that, you know you're going to be slower—meaning we're going to tolerate higher inflation.

...


I'm not posting this as an agreement with the policy decision, but as a counterpoint to what was NOT posted in the O/P or by any of the follow-on !! posters.

[FiveGoodMen]

16. "Why compromise if you're winning?"

Because Obama and many other Dems are really double agents.

They're listed on the D side, but they're working for the R agenda.

They don't see the sudden reversal as a compromise, but as snatching victory from the jaws of defeat.

[Angry Dragon]

17. Where is the Obama I voted for??

It is time for him to get rid of Treasury Secretary Timothy Geithner—a former Fed official—and Rahm Emanuel

[FiveGoodMen]

20. It IS time for him to get rid of them.

However, I don't see how we can continue to think that he's on our side but just happened to appoint all these bad people.

They reflect Obama's views.

[Better Believe It]

21. Or perhaps President Obama reflects their views.

But, his Wall Street advisors seem to have a common purpose and objective.

[Better Believe It]

18. Dean Baker believes the Fed audit compromise is a big step forward

Unwashed Masses 1, Fed 0: Sanders Scores
by Dean Baker
May 7, 2010

Sanders did make some compromises. The audit has an arbitrary cutoff date of December 2007. The special facilities date from the summer of 2007. It also only has the audit as a one-off proposition, rather than establishing GAO audits of Fed operations as an ongoing principle. The compromise also explicitly exempts open market operations - the Fed's daily buying and selling of short-term assets to control interest rates - from GAO scrutiny.

These concessions are unfortunate, the Fed is a creation of Congress and for that reason it should be subject to the same investigative procedures as any other federal agency, but they certainly are secondary compared with getting a full accounting of the money lent out through the special facilities. It is also important to note that in one very important way the Sanders compromise goes beyond the original Paul-Grayson language. Under the compromise, the information about the lending facilities will be made fully public where everyone can scrutinize it. The original bill would just have this information made available to the relevant congressional committees. They would then have to make a further decision about what information, if any, would be made public.

There has been a long ongoing battle with the Fed over its policy of excessive secrecy. Over the years, Congress has pushed back at efforts to treat the Fed as a holy temple outside of democratic control. It has made progress at holding the Fed accountable through measures like requiring the semi-annual Humphrey-Hawkins testimony by the Fed chair before Congress, the release of full transcripts of Fed open market meetings (with a 5-year lag), and now this public audit of its special facilities. There will be further battles and we have a long way to go before the Fed is as democratically accountable as it should be, but the Sanders compromise is a big step forward.

Please read the full article at:

http://www.commondreams.org/view/2010/05/07-5

[LiberalAndProud]

19. Interesting scores: Masses 1; Fed 0

And there is this:


http://www.cato-at-liberty.org/2010/05/07/federal-reserve-1-transparency-0/
Federal Reserve 1, Transparency 0
Posted by Mark A. Calabria

It is being reported that the Senate has reached a “compromise” on Bernie Sanders’ amendment to audit the Federal Reserve. This amendment was a companion to Ron Paul’s House bill that would have subjected both the Federal Reserve’s lending facilities and monetary policy to a GAO audit. The compromise? Drop the monetary policy audit. It is hard to match Ron Paul’s reaction: “Bernie Sanders has sold out.”

Congressmen Paul is 100% right on this. While it is important to get details on the Fed’s emergency lending facility, those decisions are behind us. The public has a right to know who benefited from the Fed’s actions, but the reality is that such an audit would change little going forward. The real action is monetary policy.

-snip-

Of course, some worry that an audit would undermine the claimed independence of the Fed. For instance, former Hartford insurance exec, now Obama Treasury official, Neal Wolin praised the compromise, claiming the original language would “threaten the central bank’s independence from Congress.” Sadly, Mr. Wolin is confused about the nature of the Fed. If there is a constitutional basis for the Fed, it is Article I, Section 8’s delegation to Congress of the ability “to coin money, regulate the value there of,” which Congress has delegated to the Fed. The supposed independence of the Fed is from the Executive branch, not Congress. And one of the very reasons for an audit is for the public to have a window into the dealings of the Fed with the Executive branch, most importantly the Treasury. What Mr. Wolin and others are trying to protect is the favored relationship between Treasury and the Fed. A GAO audit would shift the balance of power over the Fed away from the Executive and back to Congress, who despite its many problems, is directly accountable to the American public.

The gutting of the Sanders’ amendment is a huge win for both Wall Street and the Treasury (is there any longer a difference between the two?), and a massive loss and missed opportunity for the American public, and its representatives in Congress, to regain some control over an agency (the Fed) that has acted as a piggybank for both Presidents Bush and Obama.