Congress Must Audit the Federal Reserve

On May 5, Rep. Alan Grayson (D-FL) grilled Federal Reserve inspector general Elizabeth Coleman. What knowledge did she have of Bloomberg’s report that the Fed had made trillions of dollars in off-balance sheet transactions? Did she know who received the trillion dollars that was added to the Fed’s balance sheets since last September? Was there any investigation into why the Fed didn’t rescue Lehman Brothers, a move that sent shock waves through the financial sector?

To all of these questions, Coleman professed total ignorance, and assured the Congress there were presently no investigations taking place. What madness is this? The economy is in shambles, and the group most responsible for keeping our financial system stable has no answers and doesn’t care to find any.

The Federal Reserve is accountable to no one. It has no budget, no Congressional committee monitors its operations, and although the Government Accountability Office (GAO) is tasked with auditing the Fed, it is so constrained as to be useless.

The GAO is prohibited from auditing: transactions for or with a foreign central bank, government, or government financing organization; deliberations, decisions, or actions on monetary policy matters; transactions made under the direction of the Federal Open Market Committee; and any communication among members of the Board of Governors and employees of the Fed related to the above.

When the Democratic Chairman of the House Banking Committee, Henry Gonzales, introduced a modest proposal for opening the Fed up to Congressional scrutiny in 1993, President Clinton rejected Gonzales’ bill. The bill merely asked for a Congressional audit of the Fed’s operations, with minutes and video of policy meetings released to Congress in a timely manner. Clinton argued that Gonzalez’s reforms would “run the risk of undermining market confidence in the Fed.”

Clinton’s argument is hard to believe even on the surface: shouldn’t the assurance that Congress has knowledge of the Fed’s activities improve confidence in the market? Why should “market confidence” depend on more secrecy than is accorded to the Pentagon?

Since the government is not accountable to the market, but only to the public and Congress, if there is no Congressional oversight and no election, there is no accountability at all. Indeed, the Fed is essentially an oligarchy of the banking elite. When the President names a Fed chairman, it’s from a list of people already approved by the Fed’s Board of Governors. The Federal Reserve System, by the way, is privately owned.

As Congressman Barney Frank, a co-sponsor of the Gonzales bill, put it: “If you take the principles that people are talking about nowadays,” such as “reforming government and opening up government—the Fed violates it more than any other branch of government.”

That was 1993. Today, the Fed has no standpoint of credibility to claim that its secrecy protects market confidence. By all appearances, trillions of dollars are going missing. HR1207, and its companion bill in the Senate, S604, would amend the code to remove the restrictions on the GAO audits noted above, and mandate a full audit by the end of 2010. The bill has 134 co-sponsors in the House, with wide bi-partisan support, including Lynn Woolsey (D-CA), co-chair of the Progressive Caucus; Stephanie Sandlin (D-SD), chair of the Blue Dog Coalition; Ron Paul (R-TX), the bill’s sponsor whose Rally for the Republic competed with the Republican National Convention in Minneapolis and drew 10,000 people; and Pete Sessions (R-TX), chair of the Republican Congressional Campaign Committee. In the Senate, the sponsor is Bernie Sanders.

Puzzlingly, Rep. Frank, who now heads the House Financial Services Committee, is stonewalling on the bill. And given their reputation for championing transparency and accountability, it’s remarkable that none of Washtenaw County’s representatives in Congress—Reps. Dingell and Shauer, Senators Stabenow and Levin—have co-sponsored the bill. As their constituents, it is our responsibility to get them on board. The collapse of our financial institutions has devastated our country, and it’s unconscionable that Congress has abdicated its responsibility to protect the taxpayers from the irresponsible actions of the privately-owned, publicly-accountable central bank.

We are collecting signatures on an ongoing basis at http://www.campaignforliberty.com (there’s a big banner on the home page) for a petition to Congressman Dingell to join the 149 members of Congress co-sponsoring this bill. Or, call or write his district office at 301 West Michigan, Suite 305, Ypsilanti, MI, 48197, tel (734) 481-1100. And feel free to drop Rep. Frank a line, too, and remind him the wisdom of his words in 1993.

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