Thread: Fed Fires Back at Ron Paul Over Audit Bill

Fed Official: Policy Audits Undermine Independence

Friday, September 25, 2009 1:46 PM

WASHINGTON -- Letting a U.S. agency audit Federal Reserve monetary policy decisions would undermine the U.S. central bank's independence and could hamper its ability to control borrowing costs and support the dollar as the world's reserve currency, a Fed official said on Friday.

Lawmakers are considering a measure that would let the Government Accountability Office, an investigative arm of Congress, review the Fed's decisions on monetary policy, in which the central bank sets targets for interest rates. The audits also would cover the Fed's discount window and open market operations.

"Enactment of the bill would tend to undermine public and investor confidence in monetary policy by raising concerns that monetary policy judgments in pursuit of our legislated objectives would become subject to political considerations," Fed General Counsel Scott Alvarez told the House of Representatives Financial Services Committee.

"These are not audits in the sense that a CPA or accountant would conduct an audit. They are really policy reviews, they are reviews that often times are involving interviews or depositions of participants, looking at records and coming to an independent policy judgment," Alvarez said, adding that the Fed's decisions could be seen as reacting to GAO findings and congressional criticism.

The Fed has been under fire from Congress because of its actions to prop up financial firms during the financial crisis that sent the U.S. economy into recession and the expansion of its balance sheet to $2 trillion in obligations without lawmaker approval.

A long-time critic of the Fed system, Rep. Ron Paul, a Republican from Texas, proposed subjecting the Fed's policymaking to GAO scrutiny, and his bill has gained broad support. The House is debating Paul's proposal as part of broader measures to reform U.S. financial oversight and rules in the wake of lapses that contributed to the crisis.

Alvarez said Paul's measure, if enacted, would raise questions about the Fed's ability to act free from political pressure.

"Financial market participants likely would see this as a substantial erosion of the Federal Reserve's monetary policy independence," and undermine investor confidence in the U.S. central bank, Alvarez said.

He said the GAO audits would chill the "unfettered and wide ranging policy debates" among Fed policy makers and reduce their effectiveness.

Alvarez also said the proposal also could disrupt relationships with foreign central banks and governments, who would likely balk at entering into transactions with the Fed if they would be subject to such a review.

"These transactions, such as the deposit of international reserves and bilateral currency swap arrangements, help support the role of the U.S. dollar as a worldwide reserve currency and alleviate stresses in U.S. financial markets," he said.

Alvarez said the GAO had completed 14 audits of the Fed in areas that included consumer protection and has 14 additional audits in process.

However, the Fed's top lawyer said he had no objections to audits and controls on the use of special lending powers invoked to bail out Bear Stearns and American International Group last year and make loans to broker-dealers. This authority under section 13-3 of the Federal Reserve Act allows the Fed to take such actions if they identify unusual and exigent circumstances.

Rep. Barney Frank, the influential chairman of the Financial Services committee, said any audit authority over the Fed should be part of an overall regulatory reform package that considers the Fed's future role as a systemic risk regulator or shifts its consumer protection functions to a new agency. This also should place some new controls on the 13-3 authority, which greatly expanded the Fed's activities during the financial crisis.

Alvarez added that he believed that if Congress provided so-called resolution authority to he government to seize and wind down large, systemically important failing institutions, the special 13-3 rescue authorities may not have been necessary.

http://moneynews.newsmax.com/financenew ... 64874.html

House Pushes for Sweeping Audit of Fed

Friday, September 25, 2009 1:46 PM

WASHINGTON -- House lawmakers want to pry open the books of the famously secretive Federal Reserve with legislation that would subject the U.S. central bank to a sweeping congressional audit.

The effort is overwhelmingly bipartisan. Hardline conservatives and liberal Democrats have banded together in their criticism of the Federal Reserve as a major power broker in the financial system that does not answer to Congress.

Friday's debate comes as lawmakers consider a proposal by President Barack Obama that would give the Fed new powers to prevent another economic crisis.

"Nobody in my district thinks that the Fed has done such a wonderful job of running the economy that we should continue to cloak them with secrecy for the purpose of protecting them from second-guessing criticism," said Rep. Brad Sherman, D-Calif.

The Fed is pushing back, warning that its ability to stabilize prices and monitor interest rates would be compromised if it knew politicians were looking over its shoulder.

The House proposal would "cause the markets and the to public to lose confidence in the independence and the judgments of the Federal Reserve," Scott Alvarez, the board's top lawyer, told the House Financial Services Committee in testimony.

The legislation is championed by Rep. Ron Paul, a Republican whose extreme libertarian bent usually does not generate consensus in Congress. But as of Friday, Paul's legislation had attracted 295 co-sponsors with a range of political philosophies, including liberal Rep. Neil Abercrombie, D-Hawaii, and Rep. Jeb Hensarling, R-Texas, an outspoken conservative.

The bill would direct the Government Accountability Office, the congressional watchdog agency, to complete by the end of 2010 an audit of the Fed's Board of Governors and its banks. Current law shields the Fed from scrutiny of its work on monetary policy and its dealings with foreign banks.

Federal Reserve Chairman Ben Bernanke has insisted that any congressional audits should steer clear of the central bank's core mission — setting interest rates to foster economic growth, employment and low inflation.

Since its creation almost a century ago, the Fed's profile has increased substantially. In addition to setting monetary policy, the Fed supervises banks to ensure the "safety and soundness" of the financial system and enforces rules to protect consumers.

Most alarming to lawmakers is the Fed's $2 trillion balance sheet after invoking emergency powers during last year's market crisis to lend money to companies outside the financial sector and buy up mounds of short-term commercial debt.

"I simply do not believe that ultimately an unelected group of individuals should have unfettered ability to impose trillions of dollars of taxpayer exposure liability without some type of check or constraint by the people's elected officials," said Hensarling.

Alvarez countered that the Fed is still accountable to Congress because it testifies on its activities and cooperates with GAO investigations in areas other than monetary policy and foreign dealings.

Obama has proposed a major overhaul of the regulatory system that would strip the Fed of its consumer protection role and hand that to a separate government agency. But the plan would give the Fed another major role in influencing the market by putting it in charge of regulating institutions deemed "too big to fail."

In a bid to mollify critics who say the Fed should be more accountable, Obama also proposed a requirement that the Fed obtain Treasury Department approval before extending credit to institutions in "unusual and exigent circumstances."

http://moneynews.newsmax.com/financenew ... 64873.html

The Fed is pushing back, warning that its ability to stabilize prices and monitor interest rates would be compromised if it knew politicians were looking over its shoulder



And just who in the hell wants politicians auditing or monitoring The Fed?

We expect something to be actually be DONE about this den of liars and thieves

Originally Posted by jshhmr

And Glen Beck called Ron Paul supporters "terrorists" Hurry up and read this people before my comment gets removed!! God forbid I say ANYTHING anti-Beck!

Beck's a demagogue in many ways. I try to just judge whether he's brought anything factual to light; his histrionics undermine his credibility; he's flip-flopped on enough issues that you have to wonder about what his core beliefs might be.

http://www.youtube.com/watch?v=3wm96uz11NM

Guy Fawkes ... uh, yes.