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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

May 3rd, 2010 7:23 PM

Audit the Fed: What Did They Do With Our Money?

We're entering the final innings of the debate over financial reform. There are many important issues still up in the air including whether the law will do anything to break up the big banks and prevent them from engaging in risky trading. Remarkably, the place where the Obama administration has chosen to devote its energy is protecting secrecy at the Federal Reserve Board.

Senator Bernie Sanders has proposed an amendment on auditing the Fed, which would allow the Government Accountability Office (GAO) to audit the special lending facilities that it created during the crisis. This measure would allow GAO to find out who benefited from the more than $2 trillion lent out at the peak of the financial crisis and under what terms. It would make this information available to the relevant Congressional Committees, which would then decide whether disclose it to the public. (Bloomberg News Service won a case in a federal district court that the public already has a right to this information. The case is being appealed.) The Sanders amendment is similar in its wording to the audit language that was overwhelmingly approved by the House.

For some reason this has put the Obama administration into hysterics.

They are arguing that the independence of the Fed will be compromised if it has to tell GAO what it did with our money. This is a rather bizarre notion of independence. After all, most of this money was disbursed well over a year ago. The amendment is simply about requiring the Fed to be accountable after the fact. We would be outraged over the Department of Housing and Urban Development spending even $2 million with no accountability. We are supposed to accept that the Fed can lend out a million times this amount with no accountability to the public?

The one argument that the Fed advances to justify its secrecy is that disclosure would place a stigma on borrowing through these sorts of facilities in the future. It is hard to take this one seriously. After the Goldman Sachs crew has been exposed for designing complex instruments intended to sucker its clients into losing billions, are we supposed to believe that they would be concerned about the stigma associated with borrowing money from the Fed?

Furthermore, so what if there is a stigma associated with borrowing from the Fed? During the next crisis will Citigroup and Morgan Stanley's executives put their banks under rather than endure this stigma? What will they tell their shareholders?

Finally, the idea that we should trust the Fed is more than a bit hard to take. The Fed blew it -- that is why we have 15 million people unemployed, millions of people losing their homes and tens of millions with life's savings eviscerated. This whole crisis was due to the incompetence of Greenspan and Bernanke. It's long past time that Congress demanded that this crew be held accountable for their actions. They are not holy priests. They are incompetent economists. And (unfortunately) they work for us. Tell a Senator near you.

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