The Huffington Post reports that Federal Reserve audit support surging in House.
(emphasis mine) [my comment]
June 11, 2009
Federal Reserve Audit Support Surging In House
By Ryan Grim
The effort to increase the transparency of the Federal Reserve's operations has picked up surprising momentum over the last month, with more and more rank-and-file members of Congress steadily signing on to a bill introduced in February by Rep. Ron Paul (R-Texas) to expand the authority of the Government Accountability Office to audit the Fed.
The bill has surged past 200 cosponsors and
is just five short of the 218 needed for passage [is past the 218 needed for passage (with 221 cosponsors)]. On Tuesday, Rep. John Boehner of Ohio, the Republican Leader, signed on.
Fifty-one Democrats have joined 156 Republicans so far to back HR 1207. A similar bill sponsored by Rep. Dennis Kucinich (D-Ohio) also has momentum and is on pace for a congressional hearing soon in the House Oversight and Government Reform Committee, where Kucinich is a subcommittee chairman.
The bill would authorize the GAO to audit the Fed's funding facilities, such as the Primary Dealer Credit Facility, Term Securities Lending Facility, and Term Asset-Backed Securities Lending Facility -- known as TALF.
The Fed has expanded its liabilities and its balance sheet massively since September 2008, buying toxic assets and lending hundreds of billions to foreign central banks in unchecked swaps, then sending that foreign currency to U.S. banks.
On CNBC Wednesday morning, in response to a question about the bill from guest host Arianna Huffington, Grant's Interest Rate Observer editor Jim Grant endorsed a comprehensive audit of the Fed, saying that if the Fed were subject to the treatment and auditing it gives other banks, it would be found insolvent.
Some of the critics of the Fed challenge the very notion that monetary policy should remain independent from Congress. "Monetary policy isn't independent. It just has independence from democracy," said one congressional aide whose boss is signed on to Paul's bill, meaning that the Fed is not independent from political forces, just from Congress. [nicely put]
Such critics have challenged the power the Fed holds known as "section 13(3) authority," referred to as the most powerful paragraph in US law. That section, which grants the Fed nearly unlimited authority in "emergency" situations, could be reviewed as part of the "regulatory restructuring" that Congress and the administration are undertaking.
Defenders of an
independent [unaccountable] monetary policy, which includes the political elite, argue that politicizing [a transparent] monetary policy would destabilize the financial system, devalue the dollar and lead to higher interest rates. ["politicizing monetary policy would destabilize the financial system"? You mean it is actually possible to "destabilize the financial system" MORE than it already is?]
"If monetary policy is seen as not being independent that could shake people's confidence in the dollar. I mean, we are dealing with a world of nervous people," said Frank.
"To the extent that there's a political element in the monetary policy it would be seen as being very inflationary, and whether that's right or wrong, it would have a negative effect on the dollar, more than we would like on interest rates, on everything else."
A politicized monetary policy is assumed to be inflationary because politicians have an incentive to run-up deficits and then inflate away the debt [This is ALREADY happening] - a policy that would harm debt holders such as China.
Paul spokesman Jesse Benton rejected the idea that the Fed is or should be independent, arguing it "wields tremendous power and should have full transparency and accountability to the American people [Agreed]. In response to the concerns about the Fed's 'independence, why would a body independent of politics' hire a lobbyist?" [To keep pesky politicians from questioning its authority. See Federal Reserve hires a lobbyist]
The twin leaders of the movement personify the right-left coalition pressing for Fed reform. Kucinich ran for president representing the Democratic left flank, while Paul ran representing the libertarian wing of his party. The GOP embrace of Paul's Fed skepticism is a signal of its movement in his direction.
Bloomberg reports that Republican staff say e-mails show Fed overstepped.
Republican Staff Say E-mails Show Fed Overstepped
By Scott Lanman and Craig Torres
June 11 (Bloomberg) -- House Republican staffers preparing lawmakers for a hearing today [Housing staffers and lawmakers "preparing" for a hearing? I thought congressional hearings were all about whitewash and feigned concern] said Federal Reserve and Treasury officials overstepped their authority and pressured Bank of America Corp. to complete its Merrill Lynch & Co. purchase. [Federal Reserve and Treasury officials have been overstepping their authority since before Bear Stearns, and, so far, no congressional hearing has produced anything besides (mostly insincere) outrage. Will something finally be different this time?]
In a memo written for Republicans on the House Oversight Committee and obtained by Bloomberg News, the staffers cite what they identify as excerpts from internal Fed e-mails to support their stance [This is called evidence of impropriety, and there is a mountain more of it if they bothered looking]. The committee issued a subpoena to the Fed June 9 for documents related to the transaction.
Bank of America Chief Executive Officer Kenneth Lewis, who is testifying at the hearing in Washington, told New York state investigators in February that he was pressured in December by Fed Chairman Ben S. Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill acquisition amid mounting losses at the brokerage firm.
California Representative Darrell Issa, the panel's senior Republican, said in a Bloomberg Television interview that "lines were crossed" as the government pressed Lewis to close the Merrill deal. Issa said he hasn't reached a conclusion that Bernanke should step down. The Fed chief and Paulson should appear before Congress to explain their actions, he said. [Yes, they should. But will they?]
The Wall Street Journal reports that Fed under fire on hill.
JUNE 11, 2009, 5:26 P.M. ET
Lewis, Fed Under Fire on Hill
By MICHAEL R. CRITTENDEN
WASHINGTON -- U.S. lawmakers took aim at Bank of America Corp. Chief Executive Kenneth Lewis and government regulators Thursday, fuming over internal Federal Reserve emails that suggest the bank should've known earlier about growing losses at Merrill Lynch & Co. [It is good that they are upset about this, but what are they going to do about it? Actions speak louder than words]
"Why did a private business deal, announced in September, and approved by shareholders in December, with no mention of government assistance, end up costing taxpayers $20 billion in January," Rep. Edolphus Towns (D., N.Y.) said at a hearing featuring an appearance by Mr. Lewis on Capitol Hill.
Rep. Darrell Issa (R., Calif.) said Bank of America got itself "into a fix" with the acquisition of Merrill Lynch, where losses started to pile up throughout November and into December. But he said that pressure from the Fed and the Treasury Department for Bank of America to close the deal in a series of tense negotiations last December should raise serious concerns for policy makers.
"This committee should be most concerned .. about financial vigilantes at the [Fed and Treasury] who are dictating extralegal government directives through threats and intimidation to private companies," Mr. Issa said in his prepared remarks.
Foxnews reports that Lawmakers asks Fed to stop printing money.
June 8, 2009
GOP Reps. to Fed: Stop printing money
by Mosheh Oinounou
A group of Republican congressmen have a simple message for the Federal Reserve: Stop printing money. [better late than never]
Led by Rep. Mark Kirk (R-IL), the handful of legislators sent a letter to Reserve Chairman Ben Bernanke late last week encouraging the Fed to stop monetizing debt — or creating funds to buy U.S. treasuries.
"Creating dollars to cover debts gives markets a short term boost at the expense of debasing the dollar and triggering inflation. To date, the Federal Reserve has already created over $130 billion to cover $35 billion of long-term debt and over $100 billion of short-term securities," they write. "Key policy makers among U.S. creditors, especially in China and Japan, increasingly doubt the wisdom of this new policy...we urge you to rapidly end this new policy of buying U.S. debt with newly created dollars.
For his part, Bernanke has argued that the multi-trillion dollar Fed strategy to pump money into the economy is vital to preventing another Great Depression.
But Kirk and Reps. Erik Paulsen (R-MN), Leonard Lance (R-NJ) and Dan Burton (R-IN) make the case that the Federal Reserve is putting the nation on a path to sky-high inflation as well as
potentially losing it's AAA international credit rating.
The Washington Post reports that Fed is uneasy with coming balance sheet rules.
The U.S. Federal Reserve has privately expressed concerns over new accounting rules that could force banks to move more assets onto their books [The Fed is a huge believer in the "mark to myth" school of accounting], a person familiar with the Fed's thinking said on Friday.
The Financial Accounting Standards Board made changes in May to rules that could affect trillions of dollars in off-balance-sheet assets when they take effect in 2010.
Fed officials are concerned the changes could complicate emergency programs the central bank created over the last year-and-a-half to kick-start capital markets by ridding banks of toxic assets, said the person, who requested anonymity because of the sensitivity of the situation.
"They are concerned about their ability to deal with the toxic asset issue," this person said. "The Fed is trying to take these assets off the financial institutions, but some will come onto the balance sheet. They are afraid it will exacerbate an already complicated situation." [Why should the Fed take these toxic assets onto its balance sheet? It should let banks go bankrupt rather than absorb their losses.]
Marketwatch reports that GOP wants to strip power from the fed, saying bankruptcy works.
Regulators should rely on the bankruptcy process to unwind
large systemically significant financial institutions rather than allow government bailout dollars to help resolve insolvent mega-financial institutions, says a broad regulatory reform proposal unveiled by House Republicans on Thursday.
The wide-ranging proposal, which opposes the possibility of any taxpayer-funded bailout dollars for any individual financial institution, seeks to rival a regulatory reform proposal the Obama administration is set to announce next week.
"No nation can bailout, borrow or spin itself out of prosperity," said Jeb Henserling, R-Texas.
Stripping the Fed
The GOP proposal also would strip supervisory authority from the Federal Reserve, prohibiting it from intervening on behalf of a specific institution. It could prohibit the Fed from guaranteeing the assets of certain large financial institutions. [This would be wonderful development, IF it ever happens.]
More good news! Bloomberg reports that Fed said to retreat from seeking debt-issuing power.
Federal Reserve has backed off from seeking
a new tool to forestall inflation [a massive power grab], refraining from asking Congress for the power to issue its own debt, according to a person familiar with the matter.
Putting off the issue may avoid a political clash over whether the Fed should begin winding down its emergency lending programs while unemployment remains elevated. The central bank intends to rely instead on paying interest on banks' reserve deposits to prevent a flood of cash into the economy. [which essentially makes excess reserves at the fed into a form of short term debt]
After central bankers repeatedly said Fed bills would be a useful additional tool to mop up liquidity, Chairman Ben S. Bernanke omitted mention of the idea in congressional testimony last week. The person, who spoke on condition of anonymity, said the Fed hasn't made a formal request to lawmakers.
Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, has indicated he's wary of granting the Fed additional regulatory powers. "The instances in which the Fed has failed to execute its existing authority are numerous [understatement]," Dodd said at a March 19 hearing.
In testimony before the budget committee, Bernanke suggested the Fed hasn't abandoned the idea of issuing its own debt [arrogance knows no boundaries]. Beyond the Fed's current set of tools, Bernanke said "there are still other possibilities that we're looking at and that perhaps we can discuss with Congress at some point," without mentioning the authority to issue debt.
"We suspect the omission from Bernanke's litany was not a slip of the tongue," Joseph Abate, a money-market strategist at Barclays Capital in New York, said in a research note June 4.
Abate said in an interview that lawmakers may be reluctant to allow the Fed to issue debt that's not subject to the Treasury limit and competes with other government securities [and the US is having some trouble selling treasuries]. In addition, were Fed officials to ask Congress for debt-issuing powers, they would be "opening themselves up to political interference," he said.
My opinion of
this power grab the Fed issuing its own debt is best summarized by Karl Denninger.
The Federal Reserve, a private bank, is asking for permission to issue debt in the name of the taxpayers of this nation, obligating them to pay it down and cover the interest on same, without oversight as to how the proceeds are used and under what limits and terms it is issued?
You're kidding me, right?
If this report is real and Congress does not immediately disavow this attempt - publicly - we no longer have a Constitutional Republic.
That The Federal Reserve would even discuss such a thing with Congress is, in my opinion, grounds for instantaneous revocation of The Federal Reserve Act of 1913 and a return of the control of our monetary system to Congress where it belongs.
My reaction: The Fed's authority is under attack from multiple angles.
1) Efforts to increase transparency of the Federal Reserve's operations have picked up surprising momentum over the last month.
2) More and more rank-and-file members of Congress are signing on to a bill introduced in February by Rep. Ron Paul (R-Texas) to expand the authority of the Government Accountability Office to audit the Fed.
3) The bill has surged to 221 cosponsors, past the 218 needed for passage.
4) The bill would authorize the GAO to audit the Fed's funding facilities (ie: the Primary Dealer Credit Facility, Term Securities Lending Facility, and Term Asset-Backed Securities Lending Facility (TALF)).
5) If the Fed were subject to the treatment and auditing it gives other banks, it would be found insolvent.
6) The Fed is not independent from political forces, but it is unaccountable to Congress and the American people.
7) The Fed holds power known as "section 13(3) authority," which grants it nearly unlimited authority in "emergency" situations
8) This "section 13(3) authority" could be reviewed as part of the "regulatory restructuring" that Congress and the administration are undertaking.
9) If the fed truly was a body independent of politics, it would not need to hire a lobbyist.
10) The GOP embrace of Paul's Fed skepticism is a signal of its movement in the right direction.
11) Federal Reserve and Treasury officials overstepped their authority when they pressured Bank of America to complete its purchase of Merrill Lynch.
12) US lawmakers took aim at Bank of America CEO Kenneth Lewis and government regulators Thursday over this abuse of authority.
13) A handful of legislators sent a letter to Reserve Chairman Ben Bernanke late last week encouraging the Fed to stop printing money and monetizing debt.
14) The Fed is concerned new accounting rules that would bring transparency to bank balance sheet, hugely complicating its efforts to hide bank loses (and insolvency).
15) A GOP proposal also would strip supervisory authority from the Federal Reserve, prohibiting it from intervening on behalf or guaranteeing the assets of a specific institution.
16) Federal Reserve has backed off from asking Congress for the power to issue its own debt.
Conclusion: While positive, the building momentum behind efforts to bring transparency to the fed is another factor helping set the time frame for the dollar's collapse. An independent audit of the Fed (including physical count of its gold) would reveal the disastrous state of its assets. Since those assets are what back the dollar, it would have dire consequences for the US, possibly creating a dollar panic.