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Fed Transparency Will Get Hearings

June 22, 2009 - by Donny Shaw

I’ve been tracking Rep. Ron Paul’s [R, TX-14] bill to allow the GAO to audit the Federal Reserve as its support in Congress has grown from 11 co-sponsors to 237, more than a half of all the members of the House. As I reported a couple weeks ago, House Financial Services Committee Chairman Rep. Barney Frank [D, MA-4] now seems to be tentatively supporting the bill. Jane Hamsher spoke to Frank and got little more information:

I asked him if he supported the bill. “Not in every exact detail,” he said, but he indicated that he was in favor of giving Congress more ability to oversee the Fed.

I also wanted to know if there would be committee hearings on the bill. He said that before the August recess “there will be a hearing on that particular bill and others,” both in Mel Watt’s Subcommittee on Domestic Monetary Policy and Technology and Dennis Moore’s Subcommittee on Oversight and Investigations.

Frank’s “not in every exact detail” line is a little confusing. If you look at the bill text, it only really does two things – repeal special audit protections for the Fed contained in 31 USC 714 – Sec. 714, and require an audit to be completed and reported to Congress before the end of 2010.

Presumably, Frank wants to limit what the GAO would actually be allowed to look at if the bill were to become law. Here’s the section of U.S. Code that protects the Fed from meaningful government audits — all of it would repealed under Paul’s bill:

Audits of the Federal Reserve Board and Federal reserve banks may not include – (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.

The way the law is written provides some room to negotiate. For example, Frank could limit the amount of transparency the Fed would be subject to by keeping Fed transactions with foreign countries secret.

It’s also worth mentioning that it’s very unlikely that this bill will get anywhere in the Senate. For one, it only has two co-sponsors in the Senate at this point, even after all the citizen lobbying that has gone into supporting it. Secondly, Fed transparency is basically a populist push, and members of the Senate, needing to be re-elected only every 6 years, are generally less responsive to the people. Bringing transparency to the Fed seems non-controversial, but there is an argument against it – that if the Fed stays politically insulated it will be more likely to be concerned with long-term objectives. Third, All it takes is a single senator to object to a bill like this and they can hold it up for months. With health care, climate change, immigration, and financial regulations – all stuff being pushed by President Obama – the Senate won’t have time for a long debate (filibuster) on this, even if they wanted to do (which they don’t).

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