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Grayson: Fed Should Be Accountable

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July 30, 2009 – Comments (5)

Rep. Alan Grayson, D-Fla., is upset that Congress is in the dark about much of the Federal Reserve’s activity.

He notes that he asked Fed Chairman Ben Bernanke what happened to $500 billion that the Fed extended in swaps to foreign countries, Grayson writes on the Naked Capitalism Web site.

Bernanke’s response: He didn’t know.

Full article

5 Comments – Post Your Own

#1) On July 30, 2009 at 5:43 PM, devoish (98.26) wrote:

I would like to hear someone make the argument for Fed independence from politicing.

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#2) On July 30, 2009 at 7:17 PM, dbjella (< 20) wrote:

Grayson: Fed Should Be Accountable
Thursday, July 30, 2009 2:10 PM

By: Dan WeilArticle Font Size  

 

By design, the Fed is independent, its leader appointed by the President and not the Congress or voters.

 

Nevertheless, and despite evidence that Bernanke kept the global economy from imploding as the credit crisis struck, most Americans disapprove of his performance.

 

Kept the economy from imploding?   Hello!  I am now of the belief that we should have tried to find out. 

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#3) On July 31, 2009 at 1:41 PM, Alex1963 (28.47) wrote:

See Jim Lehrer's 3 part interview with Bernanke. Part of what was asked/covered in a Q/A was the proposal to "audit" the Fed. I went from supporting the concept as I thought I understood it to being skeptical of it's effects. 

According to Ben the bill goes beyong simply auditing to involving politicians in Fed fiscal policy decisions.  

Here's an excerpt

"JIM LEHRER: As you know, there's an effort in Congress now, in the House in particular, to audit what the Federal Reserve does, particularly a monetary policy. How do you feel about that?

BEN BERNANKE: So that bill - people don't fully understand what that bill is about. It sounds like audit the Fed, it sounds like let's look at the books. It's not what it sounds like. The Congress already looks at our books. We have many different layers of auditors. The GAO, the General Accountability Office, which is supposed to be doing this audit, already looks at virtually all of our activities, and the ones it doesn't - our financial books and our financial loans and so on, and the ones it's not looking at and where the taxpayer needs some assurance is we're willing to work with Congress to make sure that the GAO gets the information it needs.

What people don't understand is that this bill would give the GAO the authority to audit monetary policy. And what does that mean? That means that if the Federal Reserve decided a year from now that because of incipient inflation it was time to raise interest rates, that the Congress would say, "Oh, the GAO's going to audit that decision. It's going to subpoena your materials. It's going to demand information from the members of the FOMC. It's going to evaluate your decision and report to Congress." I don't think that's consistent with independence. So we are completely open to providing any information that Congress wants to make sure we're using taxpayer money safely and soundly, that we are meeting all our responsibilities. I don't think the American people want Congress running monetary policy, and I think that's very, very critical for people to understand.

JIM LEHRER: And do you think that's what -- would end up doing?

BEN BERNANKE: Exactly. That's what it would do. There's a provision in that law which currently, current law, which carves out monetary policy, and it doesn't give Congress authority or GAO authority to audit it. That was put in in 1978, at a time when we had a lot of inflation, as you may remember. After that, the Fed became more independent, brought inflation down. But now that's exactly what it would do. If that carve-out is eliminated, the Congress would have the authority anytime to ask the GAO to come in and audit and look at and evaluate the monetary policy decisions made by the Fed. That's not consistent with independence."

Here's the link to the whole transcript.

http://www.pbs.org/newshour/bb/business/july-dec09/bernanke_07-27.html

Those of you who really dislike Ben may enjoy him admitting the Fed dropped the ball early on in not recognizing or reacting to the various systemic risks building up. I thought that was admirable of him to say particularly in a town hall setting, personally.

After poking around at this audit issue for the last few months I consider this more a red herring issue. The Fed may have screwed up at times but I do not believe there were nefarious actions or motives. David Brooks' piece todays NY Times sums up my own opinion 

http://www.nytimes.com/2009/07/31/opinion/31brooks.html?th&emc=th 

As to polls I guess I'm somewhat amused. it wasn't long ago most people including the majority here on Caps were positive we were going to completely melt down by summer. You can argue we have only postponed and I wouldn't disagree that it's certainly still a possibility but it also hasn't happened. Very few here or in the wider world thought we'd even be discussing a possible recovery or foresaw the market rally since January. In my view that is actually pretty spectacular results overall. 

Good post= rec

Alex 

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#4) On August 02, 2009 at 10:43 PM, Option1307 (29.75) wrote:

 Alex1963

already looks at virtually all of our activities, and the ones it doesn't - our financial books and our financial loans and so on,

Ha ha ha, aren't those the most important parts that we should be looking into?

There's a provision in that law which currently, current law, which carves out monetary policy, and it doesn't give Congress authority or GAO authority to audit it. That was put in in 1978, at a time when we had a lot of inflation, as you may remember. After that, the Fed became more independent, brought inflation down. But now that's exactly what it would do. If that carve-out is eliminated, the Congress would have the authority anytime to ask the GAO to come in and audit and look at and evaluate the monetary policy decisions made by the Fed. That's not consistent with independence."

I just don't buy his excuss here. Basically he cliams that the independence of the Fed has resultede in good monetary policy. Really Bernanke, really? Hasn't the dollar lost something like 95% of it's buying power since the inception of the Fed?

I'm not a fan of the Fed, and I see no real use for them. But regardless of that point, doesn't it make sense do understand what they are doing with the literally Trillions of dollars they claim? I think yes.

I guess I am just skeptical of anything Bernanke says because he has not exactly been overly honest with the public during his tenure/life. Isn't it rather covenient that he claims this rhetoric now that the bill is finally gainning some publicity.

Good thoughts though Alex, enjoyed your view.

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#5) On August 03, 2009 at 1:53 PM, Alex1963 (28.47) wrote:

Option

I basically agree with what you wrote. However

a) If Bernanke is being truthful then Congress already does audit and understand most of what the Fed does & the bill is apopulist red herring. My understanding is that what is not disclosed is 1) private notes from meetings and memos discussing things like possible future actions 2) specific financials/details on specific entities (banks etc) which may have potential issues which are being discussed & montored internally at the Fed. I don't have an issue with this if it's true. Having some Congressional aide leak news about a potentially troubled entity could be disasterous for the entity and it's shareholders. Maybe once the economy is more solid this could be revisited but to me once that door is open it would never be shut. I can also imagine the potential insider knowledge then available to every committee member and their flunkies who would be privvy to sensitive information.

But to me this is not unlike expecting full disclosure to the public on defense/combat plans and covert operations. IMO, Americans do not and should not need to know everything as it happens. There have to be sensibles balances between the publics right to know and hamstringing the efforts and effectiveness of the certain Gov't or quasi gov't agencies. If it becomes apparent later that gross mis-steps were made I do think there should be disclosure, accountablity and if appropriate, punishment.

B) I would more nervous and skeptical of Congress/politics making monetary policy than the Fed. If Bernanke is correct about the full intent of the bill it sounds to me like Congress could pressure the Fed to make or change policy decisions. It's bad enough that the executive branch does this to some degree. I refer to Greenspan failing to raise rates under pressure from Clinton and the Bush.

Obviously if you believe no one should "interfere" with the market thru Fiscal and monetary policy then none of this is really pertinent. I'm not an adherent to that position, personally.

I believe that the Fed a s a concept is a good idea if it maintains it's independence from politics, and a long view strategy. 

Lastly I don't believe solely blaming the Fed for the inflation/devaluation of the dollar is quite fair. There are many factors which influenced this including IMO, going off of the gold standard, the expansion of global trade, banking/lending practices, international political pressures et al. I'm certainly no expert but I've done my share of economic self education and the arguments for and against or somewhere in between your statement are compelling. My take is that the truth is somewhere between "they are the major/sole cause" and "they had some to little effect". A recent book I read that touched on this was The Euro : the politics of the new global currency by Marsh, David. It's a good read and I found the POV on the Fed more credible in a way becuae it doesn't tacle the Fed issue head on but instead references many fiscal and monetary development is the U.S. and Europe in the framework of the euro's conception. It includes actions, events and anecdotes regarding many central banks and similar entities and the politics and pressures which resulted in the economic decisions & realities we see the fruits of today. They pay particular attention to the Bunbesbank as a model of a conservative and restrained "Fed" and the critical role it played in keeping the German economic model and currency at the peak in Europe for decades. 

I enjoyed you comments also

Alex 

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