Posted on 09/25/2009 10:45:34 AM PDT by Palin Republic
House lawmakers want to pry open the books of the famously secretive Federal Reserve with legislation that would subject the 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 Fed as a major power broker in the financial system that doesn't 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, a California Democrat.
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 Texas Republican whose extreme libertarian bent usually doesn't generate consensus in Congress. But as of Friday, Paul's legislation had attracted 295 co-sponsors with a range of political philosophies, including Hawaii liberal Rep. Neil Abercrombie and Rep. Jeb Hensarling, an outspoken conservative from Texas.
(Excerpt) Read more at google.com ...
The Fed doesn't keep the money. I'll ask again, how does it benefit them?
Nothing about monetary policy or market operations is available.
They announce the interest rate they target. Is the interest rate available?
They release the bonds they buy. Are their purchases available?
“The Fed doesn’t keep the money. I’ll ask again, how does it benefit them?”
The people running the Fed may benefit as well as people they know.
“They announce the interest rate they target. Is the interest rate available?
They release the bonds they buy. Are their purchases available?”
We can’t audit the following:
“(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.”
Open market operations include the buying and selling of bonds.
They might tell us, but they don’t have to.
Another view - Stop Pining for Glass-Steagal:
http://www.forbes.com/forbes/2009/1005/opinions-glass-steagall-on-my-mind.html
he depth of the Depression in 1933, Congress passed the Glass-Steagall Act to separate commercial banking from the securities business: JPMorgan here, Morgan Stanley ( MS - news - people ) there. In 1999 the banks persuaded Congress to tear down the wall. Glass-Steagall was repealed. Banks could merge with brokers.
Now there’s a backlash against that repeal. Some commentators and some politicians blame the repeal for the 2008 financial crisis. They want to resurrect Glass-Steagall.
This is a bad idea. The repeal of Glass-Steagall was at most a minor factor in leading up to the financial crisis, and its repeal was instrumental in resolving the liquidity squeeze on Wall Street.
The wall between commercial and investment banking was long filled with holes: Even under Glass-Steagall commercial banks could invest in bonds, manage mutual funds, execute securities trades on the order of their customers and underwrite government-related securities. The main thing they couldn’t do was underwrite corporate stocks and bonds. Even that prohibition was loosened, as regulators permitted bank holding companies to set up special subsidiaries devoted in part to underwriting corporate stocks and bonds. In other words, the main impact of repealing Glass-Steagall was to allow banking organizations to become more active in underwriting.
It was after the repeal that banks got deeply into underwriting mortgage-backed securities, and it was mortgage securities that triggered the crisis. But this doesn’t mean that the expansion of underwriting was an important cause of losses at these banks. If this argument were true, we would expect to see the portfolios of big banks crammed with low-rated mortgage paper that they could not sell in their underwritings. In fact, big banks held primarily the mortgage securities with the highest ratings, which they would have been permitted to hold under Glass-Steagall.
It could also be argued that large banks would be tempted to make bad loans to companies in order to get their underwriting business. While such practices have periodically occurred, they have for years been prohibited by several federal statutes. Moreover, when the sec looked at the banks that became insolvent during 2008, it found that the main cause of insolvency was losses on traditional bank loans unrelated to their securities underwritings.
At the same time, the repeal of Glass-Steagall facilitated the rescue of four large investment banks and thereby helped reduce the severity of the financial crisis. When Bear Stearns and Merrill Lynch got into serious trouble, they were promptly acquired with federal assistance by JPMorgan Chase and Bank of America ( BAC - news - people ), respectively. These rescues happened only because banks could own full-service broker-dealers. When Goldman Sachs ( GS - news - people ) and Morgan Stanley were challenged to find adequate short-term funding, they were allowed to quickly convert from broker-dealers into bank holding companies.
Banks have a significant advantage over broker-dealers in obtaining short-term financing in illiquid markets. A bank can rely on insured deposits and Fed loans as well as short-term financing in the form of commercial paper. Commercial paper buyers are a fickle bunch. Bank depositors are more stable retail customers.
Given the globalization of the financial markets, it would be foolhardy to prohibit U.S. banks from engaging in securities activities that are performed by their global competitors. And it would be almost impossible to obtain an international agreement that all countries would impose—many for the first time—the restrictions of Glass-Steagall on their local banking activities. Indeed, even when Glass-Steagall restricted the securities activities of U.S. banks, the law never extended to those activities conducted by those banks outside the U.S.
In short, reinstating the Glass-Steagall Act would not prevent another financial crisis. It would just increase the severity of any such crisis by limiting the options for helping securities firms in liquidity crunches. Moreover, imposing restrictions on the securities activities of U.S. banks would put them at a tremendous disadvantage relative to their foreign competitors.
“Markets don’t need ordered liberty in order to survive.”
Markets survive even under communism (black markets). but ... Markets need ordered liberty in order to thrive.
No successful prosperous nation can go long without it.
I agree wall street had something to do with it, but the real culprit is still Big Government! :-)
Enjoy our money. You earned it. Now if you don't mind, I'd like a peak behind the iron curtain.
“Markets survive even under communism (black markets). but ... Markets need ordered liberty in order to thrive.
No successful prosperous nation can go long without it.”
The federal reserve has nothing to do with extending freedom. The freedoms we have are good but it is not because of the fact that they “help” the market. The freedoms are good in and of themselves. Putting the federal reserve in charge of anything does not increase our freedom or help the market it actually decreases our freedom. Nor does congress need to do anything actively to help the market. In fact more interference is bad for the market.
And the federal reserve is no better than congress, actually since its performance is immeasurable, I will assume it is doing a worse job than congress and you should to.
How?
We can’t audit the following:
You said, "Nothing about monetary policy or market operations is available"
Will you admit your error before we move on?
“How? “
By telling people what they are going to do before they do it or by giving certain banks they are affiliated with (not necessarily officially) loans while not giving them to others. Choosing who to buy bonds from based on how that person is related to them.
“You said, “Nothing about monetary policy or market operations is available”
Will you admit your error before we move on?”
I mean no part of monetary policy or market operations are available to an audit.
If you consider that the fact that they sometimes grace us with information they don’t mind telling us as any significant form of openness you are crazy.
If they really had something to hide they would hardly give us the information we needed to find it.
That's a serious charge. You have any proof?
Choosing who to buy bonds from based on how that person is related to them.
I see that your ignorance of how they buy bonds is comprehensive.
I mean no part of monetary policy or market operations are available to an audit.
Apparently, the parts I mentioned are available on a weekly basis, no need to wait for an audit.
“Now if you don’t mind, I’d like a peak behind the iron curtain.”
Be my guest. Peeks are already allowed.
http://www.federalreserve.gov/monetarypolicy/files/20090721_mprfullreport.pdf
http://www.federalreserve.gov/newsevents/testimony/alvarez20090925a.htm
http://seekingalpha.com/article/161764-bernanke-s-predictions-imply-tough-decisions-for-2010
“Markets survive even under communism (black markets). but ... Markets need ordered liberty in order to thrive.
No successful prosperous nation can go long without it.”
“The federal reserve has nothing to do with extending freedom.”
I agree with your statement, but you are jumping around.
You had made a wrong argument about healthy markets not needing any Congressional lawmaking and I corrected that. A good additional example of my point would be Intellectual Property and patents. We need patent law to protect inventions and properly encourage and reward innovation. Anarchy there would stifle innovation.
I agreed already that the Federal Reserve is not about extending freedom. The Federal Reserve is Govt’s way to manage the money supply. As such, it does not harm our freedom nor does it add to it.
“And the federal reserve is no better than congress”
I disagree serously on this. It is well known that direct political control of the money supply is a BAD idea. The temptation to engage in inflation for short-term political gain is too great. (ie we would try to inflate out of every recession, with disastrous consequences).
” actually since its performance is immeasurable,”
This is false. You can measure the Fed. And they report on many things...
http://www.federalreserve.gov/monetarypolicy/files/20090721_mprfullreport.pdf
” I will assume it is doing a worse job than congress and you should to.”
Such an assumption is wrongly premised and ignorant so it shouldnt be made.
“That’s a serious charge. You have any proof? “
OMG. Why do you think we are trying to audit them? How can we know unless we look?
“I see that your ignorance of how they buy bonds is comprehensive. “
They cannot pick who to buy bonds from but they can pick when to buy bonds. Which, if given information in advance, can help their buddies.
“Apparently, the parts I mentioned are available on a weekly basis, no need to wait for an audit.”
Bull, they don’t give all the information that is wanted of them. They may give some sometimes, but it isn’t available for an audit unless the federal reserve says it is which is ridiculous.
Lets see if Al Capone is cheating on his taxes. Lets ask him nicely for whatever records he might give. If he gives us anything he is “open” and deserves “independence” ROFL.
“No one with power in the government should be independent as they are.”
Much of the Fed is subject already to GAO audit. Were you aware of this? I was not...
http://www.federalreserve.gov/newsevents/testimony/alvarez20090925a.htm
“I mean no part of monetary policy or market operations are available to an audit.”
This is not true:
http://www.federalreserve.gov/newsevents/testimony/alvarez20090925a.htm
The Federal Reserve is subject to oversight through a variety of mechanisms. Importantly, the Federal Reserve regularly reports to the Congress and provides both the Congress and the public a full range of detailed information concerning its policy actions, operations, and financial accounts. Indeed, our goal is to be as transparent as possible about our policies and operations without undermining our ability to effectively fulfill our monetary policy and other responsibilities.
For example, the Chairman of the Federal Reserve Board testifies and provides a report to the Congress semiannually on the state of the economy and on the Federal Reserve’s actions to carry out the monetary policy objectives that the Congress has established.1 In addition, Federal Reserve officials frequently testify before the Congress on all aspects of the Federal Reserve’s responsibilities and operations, including economic and financial conditions, monetary policy, the supervision and regulation of banking organizations, consumer protection in financial services, payments system and clearing matters, and cash and check services provided by the Federal Reserve. In fact, since the beginning of 2007, Board members and other officials have testified before the Congress more than 80 times, including 28 times so far this year.
An independent public accounting firm that is selected and retained by the Board’s Inspector General annually audits the financial statements for the Federal Reserve System, including the Reserve Banks. The Federal Reserve makes these audited financial statements available to the public and submits them to the Congress with detailed annual reports of our activities. These annual reports review the Federal Reserve’s policy actions and operations during the year across the full range of our monetary policy, bank supervision, payments system, and consumer protection functions.2 In addition, the Board annually provides the Congress with a separate report that provides detail on the budgets, budget process, income, and expenses of the Board and the Reserve Banks.3
With respect to monetary policy, the Federal Open Market Committee (FOMC) releases a statement describing its monetary policy decisions immediately after each regularly scheduled meeting and publishes detailed minutes of each meeting three weeks later. We also publish summaries of the economic forecasts of FOMC participants four times a year and release full transcripts of FOMC meetings with a five-year lag.
During the financial crisis of the past two years, the Federal Reserve has instituted a number of important programs—using both open market operations and discount window lending—to promote financial stability and the monetary policy goals of maximum employment and stable prices. As Chairman Bernanke has noted, many of the recent improvements in financial conditions can be traced, in part, to the policy actions taken by the Federal Reserve.
We recognize that these programs must be accompanied by additional transparency so that the Congress and the public can be assured that we are exercising the best possible stewardship of the resources and responsibilities that have been entrusted to us. For these reasons, we have substantially increased both the type and amount of information that we disclose concerning our liquidity and asset purchase programs. Since the System began operations in 1914, the Federal Reserve has published its balance sheet every week, showing the assets and liabilities of the Reserve Banks, both individually and on a consolidated basis.4 During the crisis, we have added significant new information to these weekly balance sheets, including information about the amount of credit outstanding under each of our credit facilities.
“I agree with your statement, but you are jumping around.
You had made a wrong argument about healthy markets not needing any Congressional lawmaking and I corrected that. A good additional example of my point would be Intellectual Property and patents. We need patent law to protect inventions and properly encourage and reward innovation. Anarchy there would stifle innovation.”
I don’t know that patents are necessary for innovation and can actually harm it. I think the key ingredients of innovation are education/communication.
“I agreed already that the Federal Reserve is not about extending freedom. The Federal Reserve is Govt’s way to manage the money supply. As such, it does not harm our freedom nor does it add to it.”
It is part of a system that disallows one to use any other kind of legal tender. If the fed was not controlling the amount of legal tender than it would be irrelevant so its existence is predicated on the notion that we cannot freely trade things of value.
“I disagree serously on this. It is well known that direct political control of the money supply is a BAD idea. The temptation to engage in inflation for short-term political gain is too great. (ie we would try to inflate out of every recession, with disastrous consequences).”
The fed pumps out money at the behest of the president (who will nominate its chairman). However, its even worse for them to be in control of it by themselves with no political ramifications. To the extent that they are, it is bad.
“This is false. You can measure the Fed. And they report on many things...
http://www.federalreserve.gov/monetarypolicy/files/20090721_mprfullreport.pdf";
There are a lot of things they don’t have to tell anyone. If they choose not to they won’t. Sure, they can come up with a big report. If everything we want to know is already in there why would they be opposed to a full audit?
“Such an assumption is wrongly premised and ignorant so it shouldnt be made.”
So you are just like the journalist who claimed that Chinese dictatorship is so good not realizing that they would look a lot worse than they do if their press was allowed to actually criticize the government.
“”I mean no part of monetary policy or market operations are available to an audit.”
This is not true:”
So you are saying that the best way to audit or investigate someone is to have them voluntarily give you information? Wow. WOW
According to current law the following are not allowed to be audited:
(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.
(c)
http://www.law.cornell.edu/uscode/html/uscode31/usc_sec_31_00000714——000-.html
Let's recap: You were wrong about their announcement of interest rate targets, wrong about their release of info about purchases and sales and finally, wrong about how they buy bonds. I'm noticing a pattern here.
Which, if given information in advance, can help their buddies.
More proof you don't understand how they buy bonds from primary dealers.
Bull, they don’t give all the information that is wanted of them.
So we've gone from they don't give any info to they don't give all info. I guess that's an improvement.
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