Federal Reserve Transparency - Audit the Fed

[Guest Jeffrey]

Read "Why Congress is Furious at the Fed," by Justin Fox.

 

The Fed is part government agency, part creature of the banking industry. This is by design; from its creation in 1913 (to prevent the bank panics that were periodically paralyzing the economy, as in 1907) until the early 1930s, in fact, the bankers who controlled the regional Federal Reserve banks had the upper hand. Congress changed the law in the early '30s to put Washington clearly in charge, and for almost two decades, the Fed was effectively an arm of the Treasury Department. After 1951, when Treasury restored the Fed's independence, it returned to hybrid status, with the presidentially appointed chairman wielding the most power but the president of the New York Fed--chosen by New York bankers--a close second.

 

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[Guest Colby]

Why in the world do American citizens need a middle-man to print United Statescurrency? Especially when that middle man is also charging us intereston the currency, then charging us 20 to 30% interest on credit.

[Guest DC Government Worker]

Chairman Ben S. Bernanke

At the Economic Club of Washington D.C., Washington D.C.

December 7, 2009

 

The Federal Reserve has been, and still is, doing a great deal to foster financial stability and to spur recovery in jobs and economic activity.3 Notably, we began the process of easing monetary policy in September 2007, shortly after the crisis began. By mid-December 2008, our target rate was effectively as low as it could go--within a range of 0 to 1/4 percent, compared with 5-1/4 percent before the crisis--and we have maintained that very low rate for the past year.

 

Our efforts to support the economy have gone well beyond conventional monetary policy, however. I have already alluded to the Federal Reserve's close cooperation with the Treasury, the Federal Deposit Insurance Corporation (FDIC), and other domestic and foreign authorities in a concerted and ultimately successful effort to stabilize the global banking system, which verged on collapse following the extraordinary events of September and October 2008. We subsequently took strong measures, independently or in conjunction with other agencies, to help normalize key financial institutions and credit markets disrupted by the crisis. Among these were the money market mutual fund industry, in which large numbers of American households, businesses, and municipalities make short-term investments; and the commercial paper market, which many firms tap to finance their day-to-day operations. We also established and subsequently expanded special arrangements with other central banks to provide dollars to global funding markets, as we found that disruptions in dollar-based markets abroad were spilling over to our own markets.

 

More recently, we have played an important part in helping to re-start the markets for asset-backed securities that finance auto loans, credit card loans, small business loans, student loans, loans to finance commercial real estate, and other types of credit. By working to revive these markets, which allow banks to tap the broader securities markets to finance their lending, we have helped banks make room on their balance sheets for new credit to households and businesses. In addition, we have supported the overall functioning of private credit markets and helped to lower interest rates on bonds, mortgages, and other loans by purchasing unprecedented volumes of mortgage-related securities and Treasury debt.

 

In all of these efforts, our objective has not been to support specific financial institutions or markets for their own sake. Rather, recognizing that a healthy economy requires well-functioning financial markets, we have moved always with the single aim of promoting economic recovery and economic opportunity. In that respect, our means and goals have been fully consistent with the traditional functions of a central bank and with the mandate given to the Federal Reserve by the Congress to promote price stability and maximum employment.

 

In addition to easing monetary policy and acting to stabilize financial markets, we have worked in our role as a bank supervisor to encourage bank lending. In November 2008 we joined with other banking regulators to urge banks to continue lending to creditworthy borrowers--to the benefit of both the economy and the banks--and we have recently provided guidelines to banks for working constructively with troubled commercial real estate loans.4 This spring, we led a coordinated, comprehensive examination of 19 of the country's largest banks, an exercise formally known as the Supervisory Capital Assessment Program, or SCAP, but more informally as the "stress test." This assessment was designed to ensure that these banks, which collectively hold about two-thirds of the assets of the banking system, would remain well capitalized and able to lend to creditworthy borrowers even if economic conditions turned out to be even worse than expected. The release of the assessment results in May provided sorely needed clarity about the banks' condition and marked a turning point in the restoration of confidence in our banking system.5 In the months since then, and with the strong encouragement of the federal banking supervisors, many of these largest institutions have raised billions of dollars in new capital, improving their ability to withstand possible future losses and to extend loans as demand for credit recovers. Meanwhile, we have also continued our efforts to ensure fair treatment for the customers of financial firms. During the past year and a half, we have comprehensively overhauled the regulations protecting mortgage borrowers, credit card holders, and users of overdraft protection plans, among others.

 

In navigating through the crisis, the Federal Reserve has been greatly aided by the regional structure established by the Congress when it created the Federal Reserve in 1913. The more than 270 business people, bankers, nonprofit executives, academics, and community, agricultural, and labor leaders who serve on the boards of the 12 Reserve Banks and their 24 Branches provide valuable insights into current economic and financial conditions that statistics alone cannot. Thus, the structure of the Federal Reserve ensures that our policymaking is informed not just by a Washington perspective, or a Wall Street perspective, but also a Main Street perspective. Indeed, our Reserve Banks and Branches have deep roots in the nation's communities and do much good work there. They have, to give just a couple of examples, assisted organizations specializing in foreclosure mitigation and worked with nonprofit groups to help stabilize neighborhoods hit by high rates of foreclosure. They (as well as the Board) are also much involved in financial and economic education, helping people to make better financial decisions and to better understand how the economy works.

 

All told, the Federal Reserve's actions--in combination with those of other policymakers here and abroad--have helped restore financial stability and pull the economy back from the brink. Because of our programs, auto buyers have obtained loans they would not have otherwise obtained, college students are financing their educations through credit they otherwise likely would not have received, and home buyers have secured mortgages on more affordable and sustainable terms than they would have otherwise. These improvements in credit conditions in turn are supporting a broader economic recovery.

[Guest Marge]

The real truth is Americans are not acquiring new debt. The Fed is hoping to have consumers ramp up their spending to grow this economy. They believe debt stimulates business growth. My question is where? The United States? Asia? I would counter the Fed by saying SAVE! SAVE! SAVE!

[Guest Avery Goodman]

We should not continue to empower the Soviet style central planning system known as the "Federal Reserve". Creating it was a historical mistake and the current structural "corruption' of such an organization was inevitable, based upon its nature and role.

[Guest Lucia]

Banks with assets less than $1 billion in assets roughly broke even in the third quarter;

Banks with assets between $1 billion and $10 billion, on average, lost $3 million apiece;

Banks with assets in excess of $10 billion recorded an average profit of nearly $42 million each.

 

The big banks, the banks that the regulators were most concerned with, are reaping a bonanza. And, why not? The Fed is keeping short term interest rates down: financial institutions can borrow for three-months in the range of 20-25 basis points in the commercial paper market and the large CD market; they can borrow for six-months in the 30-65 basis points in the CD market or the Eurodollar market. They can buy Treasury bonds that can yield 330 to 400 basis points. This is a nice spread. Plus these banks are traders and there has been plenty of volatility in the bond market in recent months. And, this does not even include the possibilities that exist in the carry trade.

 

Why?

 

Because the Fed is going to keep short term interest rates low for an "extended period" of time.

 

This effort is just another way to "bail out" the big banks!

 

The Federal Reserve continues to pump funds into the banking system, yet commercial banks seem to be very content to accept the funds and just hold onto them in the most riskless way possible. If you don't make a loan, it won't turn bad on you. Furthermore, commercial banks face the situation in which the longer term liabilities they had accumulated earlier in the decade are going to be maturing. They will need money to pay off these liabilities without replacing them.

[Guest Scott]

I would also mention the fact that for the past year speculators have used the U.S. dollar as a "financing currency." These people have no other function than to borrow dollars from the Federal Reserve and invest in higher yielding currencies. The Federal Reserve uses the proceeds to pay down our nation's debt.

[Guest Fedup]

The Federal Reserve has become an unaccountable, secret organization that make deals with foreign governments and foreign central banks with impunity, while making decisions which go far beyond its charter; things like bailing out whatever industry they feel like bailing out, even if they’ve never been delegated the authority to do so.

[Guest Jeffrey]

Federal Reserve Board Chairman Ben Bernanke on Thursday voiced his opposition to legislation calling for regular audits of the Fed’s monetary policies, but 79% of Americans think auditing the Fed is a good idea.

 

A new Rasmussen Reports national telephone survey shows that just seven percent (7%) of adults oppose auditing the Federal Reserve and making those results available to the public. Fourteen percent (14%) are not sure.

 

The new findings mark a four-point increase in support for auditing the Fed from July. The audit - to be conducted by the General Accounting Office, Congress’ investigative agency - was first proposed by Republican Congressman Ron Paul and is now part of the House’s version of a bill putting more regulatory controls on the financial sector. The Senate is more skeptical of the audit proposal.

 

But Bernanke himself is under the gun this week as Senate confirmation hearings began on his nomination by the president to serve a second four-year term as Fed chairman. Just 21% of Americans favor Bernanke’s reappointment, while 41% are opposed.

 

Unlike many issues tracked by Rasmussen Reports, there is virtually no partisan disagreement on the issue of auditing the Fed.

 

Similarly, investors and non-investors are equally supportive of the idea. Generally speaking, there is overwhelming support for such auditing across all demographic categories.

 

Congressional supporters of the audit see it in part as a way to check how much the Fed’s actions are influenced by political pressure. Sixty percent (60%) of Americans believe the Fed chairman is influenced by the president in his decision-marking. Just 20% say the chairman acts independently.

 

Bernanke and the Fed also have been key players in the Obama administration’s unpopular stimulus and bailout plans.

 

President George W. Bush originally named Bernanke to be Fed chairman, and 50% of voters blame the bad economy on the recession which began under the Bush administration. Forty-two percent (42%) blame President Obama’s policies.

 

Americans worry about the Fed’s ability to keep inflation under control and interest rates down. While Obama and senior congressional Democrats favor putting more regulatory controls on the U.S. financial system, which includes expanded powers for the Fed, 53% of Americans oppose more government regulation in this area.

 

Most voters continue to worry that the federal government will do too much when it comes to reacting to the nation’s financial problems.

 

http://www.rasmussenreports.com/public_content/business/general_business/november_2009/79_now_favor_auditing_the_fed

[Guest Bill H.]

"I do think the Fed could be audited. I think it's totally important to us to know what they're buying and selling," Barney Frank, the chairman of the House Financial Services Committee, said on CNBC television.

 

H.R. 1207, the Federal Reserve Transparency Act of 2009 is one step closer to becoming law. H.R. 1207 was introduced by Rep. Ron Paul (R-TX). The bill now has 317 co-sponsors, more than two-thirds of the entire House membership, a veto-proof majority.

 

It is about time their 'black box' financial reports are opened to see what they are investing in specifically. The auditors need to be on all sites and reviewing all key actions and policy matters to as best as possible ensure that integrity, honesty and the public interests are held in place. The Fed, Bernanke and others should never fear an audit if there is nothing wrong, illegal, or misleading in their work.

 

The current dollar is only worth approximately four cents what it was worth when the Federal Reserve was created, and most of that loss has occurred in the last 50 years. Therefore, as an inflation fighter it is a failure, as it is as a defender of price stability. Keynes himself, in his 1940s' edition of his General Theory, candidly admitted in his forward that his theory would better apply in a totalitarian state.

 

There have been several other central banks in the history of the United States, and when they were shut down we kept on going successfully without them. There’s no reason to suspect it would be any different without the Federal Reserve as well.

[Guest LAW]

Federal Reserve Chairman Ben Bernanke argued against auditing the Federal Reserve. The rare newspaper article by the Fed chairman in the Washington Post is reported on by Reuters:

 

"These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States..."

 

Read the rest here.

 

http://www.reuters.c...E5AR03X20091128

[Guest Austin]

The rest of the world does not care about the truth. Once foreign investors smell blood on the water, interest rates and inflation will shoot up and the dollar will lose most of its value.

[Guest A Friend of Dusty]

http://www.guardian.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims

 

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.

 

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

 

This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.

 

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

 

"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

 

"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.

 

The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.

 

Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.

 

British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks."

[Guest S Jones]

Citibank had $230 billion of toxic assets removed from its books and transferred to the Fed.

Now, Citibank wants to pay back its TARP funds (a mere $45 billion) and go on its merry way.

 

http://www.commodityonline.com/futures-trading/technical/Why-George-Will-fears-Fed-Audit-13367.html

[Guest LPAC]

When Time magazine decided to put its backing behind Fed Chairman 'Bail-out Ben' Bernanke, by naming him its man of the year, it just stoked the flames of opposition. Bernanke comes up for a vote in the Senate Banking committee today, but there are now at least five senators vowing to put a hold on the nomination once it reaches the floor, and the declared 'no' votes are increasing. Even more striking is the fact that there is now a bipartisan bill for reinstating Glass-Steagall introduced in the Senate, along with the one being put in by Democrats in the House.

 

The restoration of Glass-Steagall is not what is required, LaRouche said yesterday, but it's a step in the right direction. The solution would be instituting a credit system, instead of a monetary system, but those pushing Glass-Steagall are only going as far as Paul Volcker, who has been campaigning internationally for the Glass-Steagall standard, will go. Essentially, they are scared shitless about the breakdown crisis, and are trying to soften the blow, with measures that are compromises with what LaRouche has outlined must be done.

[Guest Office of Senator Bunning]

Statement By Senator Bunning On The Re-Nomination Of Ben Bernanke To Be Chairman Of The Federal Reserve

 

Thursday, December 17, 2009

 

As Prepared For Delivery:

 

Two weeks ago at the hearing on Chairman Bernanke’s nomination, I explained the case for opposing his nomination to a second term. I am not going to repeat that entire statement today, but I do want to talk a bit more about those reasons and add a few more that have come up since the hearing.

 

First, I must take this opportunity to comment on Chairman Bernanke being named Time magazine’s Person of the Year yesterday. One financial blogger wrote yesterday that this was like "rewarding the Captain of the Titanic for getting everyone off the sinking ship after he rammed it into an iceberg." And Chairman Bernanke may wonder if he really wants to be honored by an organization that has previously named people like Joseph Stalin, Yasser Arafat, Adolf Hitler, the Ayatollah Khomeini, and Vladimir Putin as their Person of the Year. But I congratulate him and hope he at least turns out better than those guys.

 

Four years ago when Chairman Bernanke was first nominated to be Chairman of the Federal Reserve, I was the only Senator to vote against him. In fact, I was the only Senator to even raise serious concerns about his nomination. I opposed him because I knew he would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong he would be in the following four years. From monetary policy to regulation, consumer protection, transparency, and independence, Chairman Bernanke’s time as Fed Chairman has been a failure. We must put an end to his and the Fed’s failures, and there is no better time than now.

 

As I said two weeks ago, the Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did Chairman Bernanke continue that policy when he took control of the Fed, but he supported every Greenspan rate decision when he was a Fed governor before he became Chairman. Sometimes he even wanted to go further and provide even more easy money than Chairman Greenspan. Yet as recently as last month, Chairman Bernanke continued to deny that Fed actions played any role in inflating the housing bubble.

 

On consumer protection, Chairman Bernanke went along with the Greenspan policy before he was Chairman and continued it after he was promoted. The most glaring example is it took him two years to finally regulate subprime mortgages after the Fed had already done nothing for 12 years. Even then, he only acted after pressure from Congress. Well, as proof that there is justice in this world, it turns out Chairman Bernanke himself would have benefitted if the Fed had acted sooner on consumer protection. In an interview in the Time magazine issue where he got his award, Chairman Bernanke said he recently had to re-finance his adjustable rate mortgage because, in his words, “it exploded”. If that doesn’t give you confidence in the man in charge of our financial system, I don’t know what will.

 

As the economy started to slide and the housing bubble peaked and then popped, Chairman Bernanke failed to notice the problems or do anything about them until it was too late. During that time he made many statements showing just how much he did not understand what was really going on in the economy or how severe the crash would be.

 

I want to read a few of those statements so that everyone understands just how wrong he has been.

 

On March 28, 2007, he said “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

 

 

 

On May 17, 2007, he said “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

 

 

 

On February 28, 2008, he said “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”

 

 

 

On June 9, 2008, he said “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

 

On July 16, 2008, he said that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”

 

And just a few months ago on May 5, 2009, speaking about the unemployment rate he said “Currently, we don’t think it will get to 10 percent.” We all wish he had been right on that one.

 

I could read many more quotes, but I think those are enough to show how wrong he has been about the major economic issues. Of course, everyone makes mistakes, so I asked Chairman Bernanke about these errors in the written questions I gave him after his hearing. His answer did not make me feel any better. He said the Fed did not understand the relationships between financial firms, how the problems in the financial sector would move to the real economy, or how severe the financial crisis would be. I thought those were the kinds of things regulators – and the Fed in particular – were paid to understand and address. We shouldn’t be paying Fed Chairmen to get it wrong or learn on the job.

 

Just like with consumer protection, Chairman Bernanke did not take the job of regulating the banks under the Fed’s authority seriously. Instead of close supervision of the biggest and most dangerous banks, he allowed them to grow their balance sheets and increase risk. And the same is true on derivatives. After taking over the Fed, he did not see any need for serious regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.

 

Even worse than the failures and flawed policies I just mentioned, Chairman Bernanke destroyed the independence of the Fed. He bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Walking arm-in-arm with the Treasury, Chairman Bernanke bailed out all the large financial institutions, including many foreign banks. And he put the printing presses into overdrive to fund the government’s spending and hand out cheap money to Wall Street. Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses.

 

After the hearing we held two weeks ago, I submitted a long list of questions to Chairman Bernanke. I already mentioned his disturbing answer to one of those questions, and now I want to talk about the answers, or more accurately the non-answers, Chairman Bernanke gave to some of my other questions.

 

The price of gold in dollars has more than doubled since Chairman Bernanke took over the Fed in 2006, and the price has set several record highs this year. That has been matched by slide in the value of the dollar. So I asked Chairman Bernanke what he thought that meant, particularly about the dollar and inflation. His answer was that it meant nothing and is not signal of global concerns about the dollar. I just don’t see how he can miss such an obvious sign.

 

I asked Chairman Bernanke what he thought the Fed’s legal authority to purchase Fannie Mae and Freddie Mac securities is since they are not government securities as required by Section 14 of the Federal Reserve Act. His answer was that the Fed has determined by regulation that they are government securities – in other words, “because I say so.”

 

In response to a question about the Fed’s decision to pay par on the AIG credit default swaps, Chairman Bernanke stated that the foreign banks were prohibited by their regulators and some foreign laws from taking haircuts. That is just not true, as European banks have indeed taken haircuts on their derivatives positions with other trading partners.

 

In another question I asked about his and Secretary Paulson’s claim that the first nine banks that got TARP money were all healthy when Citigroup and Bank of America later needed more bailouts. This is not just my concern, as the TARP Inspector General later said Paulson and Bernanke should not have lied to the public about the health of those banks. Chairman Bernanke’s response was that by “healthy” they meant the banks were “viable” and not “in imminent danger of failure.” Based on the new definition of “healthy”, I hope my doctor never tells me I am healthy again.

 

I also followed up on a question asked at the hearing by Chairman Dodd about the Fed’s claim that its bank supervision job helps with monetary policy. I asked for specifics about how that has helped in monetary policy, but received only general talking points. In fact, the only specific examples provided were about the bailout lending facilities, not monetary policy. And those facilities, as was pointed out by a financial blogger yesterday, were not designed by the bank supervisors at the Fed, but by the Markets Division in New York.

 

I will stop going through individual questions because on most of them his answer just ignored the question or repeated Fed talking points. For this Committee and the Senate to do our job of evaluating his performance, we need real answers, not talking points.

 

We have all heard Chairman Bernanke talk a lot about transparency, but his actions speak a lot louder than his words. He promised Congress more transparency when he first became Chairman, and he promised us more transparency when he came begging for TARP. While he has published some more information than before, those efforts fall short and he still refuses to provide details on the Fed’s bailouts last year.

 

It has become clear Chairman Bernanke is not going to open up the Fed’s actions to review by the taxpayers, but I thought he might at least provide more information to this Committee as we consider his nomination. So I asked him for a list of documents for us to review, all of which I think are reasonable for Congress to see. Here is what I asked for: Transcripts of all F.O.M.C. meetings Chairman Bernanke has participated in. Transcripts of all Board meetings he has participated in. Transcripts of meetings of the Board of the New York Fed while he has been Chairman. Details on any exemptions granted to Federal Reserve Act sections 23-A and 23-B while he has been Chairman. Details of all discount window transactions while he has been Chairman. Details of all transactions at facilities created under section 13-3 of the Federal Reserve Act, and legal opinions on the facilities. Copies of any swap agreements with foreign central banks, legal opinions related to those agreements, and any economic analysis about the agreements. Economic analysis regarding the need for and effectiveness of any Federal Reserve facilities created under Federal Reserve Act section 13-3. Economic analysis regarding the need for and effectiveness of unconventional monetary policy facilities or actions. And finally, other relevant documents regarding the bailouts of AIG, Bank of America, Citigroup, Bear Stearns, Lehman Brothers, General Motors, Chrysler, C.I.T., and GMAC. Instead of those documents, what I got in return was a folder full of paper they printed off the Fed’s web page. Just in case anyone was wondering, those documents did not provide any new or useful information.

 

That kind of response is not only disrespectful to the Senate, but it raises the question of what they are hiding. I think we should know the answer to that question before we move forward on this nomination, and every Member of this Committee should demand the same.

 

Well, it turns out we actually may have the opportunity to find out some of that information. I hope every Member of the Committee listens to this. Earlier this week I was informed that despite the Fed’s refusal to provide individual Senators or the public with any of the information I requested, they have let Committee staff see some documents related to the AIG bailout. When my staff asked what was in the documents, we were informed that we cannot be told because it is protected. That is a tremendous insult to the Senators on this Committee and to the people who elect us.

 

Mr. Chairman, this Committee should not move forward Chairman Bernanke’s nomination until he provides us with the documents I requested. And we certainly should not move forward until every Member of the Committee has been given the opportunity to review the documents your staff has seen. We must know what the Committee staff knows but refuses to tell Senators. We must know what other documents they have seen but we have been denied. You should bring them before the Committee today to tell us what they know, what they are trying to find out, and what the Fed refuses to tell them. I hope and ask that every Member of the Committee will join me in demanding that we be given this information before moving forward. We must know what the Fed is hiding from us and from the American people.

[Guest James Arft]

We are suffering as too many people have placed excessive faith in the abilities in federal government politicians and bureaucrats to make decisions. Faith has lead to complacency and status quo thinking. It has also allowed activities of the federal government and the Federal Reserve to be even less transparent and accountable to the people.

 

The people need accurate information to make informed voting and lobbying decisions. This process depends on the receipt of complete and factual information which includes audits.

 

One area needing transparency is the Federal Reserve Bank and the US Treasury. They create money out of thin air which is borrowed by Congress to facilitate spending money in excess of tax revenue. This money plus interest must be paid back by taxpayers. The Fed also is allowed to increase the money supply and give it to the banks at nearly free rates. The banks in turn lend the money with interest charges to the people. The Fed is also involved in giving money to foreign banks. Excessive printing of money leads to inflating the price of goods and services while reducing the value of income and savings.

 

The Congress is also at the heart of the problem. Although it created the Fed nearly 96 years ago it has never asked for or received a real audit. And, the Fed provides less information to the public than five years ago. Today dollars are printed and the Fed does not even tell us how many!

[Guest Robert]

How many more crises must we endure until we realize the common denominator is the creation of money and credit by the Fed? Wall Street bankers and speculators, who try to game the system and make profits during each boom, are mere bit players in these crises. By fostering the booms and triggering the busts, the real villain is the institution of central banking itself.

[Guest Aaron 33]

 

Jim Rogers: Audit the Fed, Then Abolish It

 

Count famed investor Jim Rogers as an ardent support of Congressman Ron Paul's effort to audit the Fed.

 

The Fed is "the only institution in the world I know of that doesn't expect to be audited," Rogers says in the accompanying video. "It's incomprehensible to me these people are saying they have no reason to be audited -- they must have done something wrong, must have something to hide."

 

A longtime critic of Ben Bernanke and his predecessor, Rogers goes a (big) step further than merely auditing the Fed, suggesting we get rid of the central bank altogether.

 

"We don't need the Fed. The Fed is making our lives miserable," the famed financier says. "The Fed is printing huge amounts of money, which we'll have to pay for sometime. The Fed is borrowing gigantic amounts of money on their balance sheet...the numbers are so staggering that this is going to have ramifications before too much longer."

 

[Guest Daniel Winter]

The call to audit can’t be loud enough. This is absolutely sickening. Not just the handshake between Bernanke-Geithner and FNM-FRE, but the notion that the government will douse this problem with our money ’til it stuffs so much cash in Wall Street’s pockets that all seams split in a windstorm of luxury cars and penthouses. If the government is so keen to give away our money, why not just give every man, woman, and child a check for $1,000,000? Debt problems disappear, and at least the inevitable, inexorable prospect of inflation’ll hit fast. Not the slow, painful rate hikes that everyone sees on the horizon. Oh, wait…Those rate hikes can’t happen when you’re giving away mortgages and begging every “bank” to borrow your money and jam equities higher. So…This is such a horrific mess, and all we hear is that, “Ah, hyuk, GDP’s up 2%. Dat’s good, yuh?” No kidding. I figured that, with the gov. spooning $10,000 to “banks” to re-finance any and all mortgages (plus the other cash blasting), that GDP’d be down. Oh, wait, what’s that you’re saying about the debt? No, don’t pay any attention to that.

[Guest LAW]

The Gold Anti-Trust Action Committee (GATA) was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities.

 

GATA brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank's records of its surreptitious market intervention to suppress the monetary metal's price.

 

The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA's law firm, William J. Olson P.C. of Vienna, Virginia, (http://www.lawandfreedom.com) Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret:

 

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

 

Mr. William J. Olson

William J. Olson, P.C.

370 Maple Avenue West

Suite 4

Vienna, V A 22180-5615

 

Dear Mr. Olson:

This is in response to your letter dated and received by the Board's Freedom of Information office on August 20, 2009, in which you appeal, on behalf of the Gold Anti-Trust Action Committee ("GATA"), pursuant to 12 CFR 261.13(i), the determination of the Secretary of the Board( "Secretary") on your request under the Freedom of Information Act ("the Act" or "FOIA"),

5 U.S.C.$ 552. By letter dated April 14, 2009,you requested documents from January 1, 1990, to the date of your letter, "relating to, explaining, denying or otherwise mentioning:' 'gold swap'; 'gold swaps'; 'gold swapped';, proposed gold swap'; 'proposed gold swaps';or 'proposed gold swapped',either involving the United States of America, or any department, agency or agent thereof involving the United States of America."

 

Your request also includes eighteen other categories of documents, generally relating to gold swaps, including numerous documents from the Department of the Treasury ("Treasury") as well as

documents relating to your near-identical OIA request regarding gold swaps from December 6, 2007.

 

Among other things, the eighteen other categories of documents requested include "all records of FOIA requests submitted by other persons which requested records involving:( a ) the GATA FOIA request of December 6, 2007 or ( the records provided to GATA in response to its FOIA request of December 6, 2OO7 since December 6,2007." Your request also seeks copies of all FOIA requests made by persons or entities other than GATA for records relating to "gold swap,"

"gold swaps," or "gold swapped" since January 1, 1990. The Secretary informed you that the Board has not received any FOIA requests for records requested by Staff's search disclosed documents that were responsive to your request. By letter dated August 5,2009, the Secretary informed you that staff had searched Board records and made suitable inquiriesa and found two additional documents,in addition to those that were responsive to your December 6, 2007

FOIA request. These two documents, consisting of 173 pages, were provided to you in their entirety.

 

The Secretary informed you that all other responsive documents contained information that was exempt from disclosure under exemptions 4 and 5 of FOIA, 5 U.S.C. 552( b )( 4 ) and( b )( 5 ), respecrively. The Secretary further informed you that the documents containing the exempt

information had been reviewed in accordance with subsection( b ) of FOIA and that

no reasonably segregable nonexempt information was found. Accordingly, 137 full pages were withheld from you, in like fashion to your earlier request.

 

You appealed this determination by letter dated and received by the Board's Freedom of Information office on August 20, 2009. I interpret your appeal as ( l ) requesting the Board to reevaluate the Secretary's determination that the claimed exemptions provide valid bases for withholding the information,( 2 ) challenging Board staff's search in response to your request,( 3 ) requesting that the Board provide documents originating from Treasury,( 4 ) requesting that the Board make a discretionary release of information even if the Board determines the documents are covered by an exemption, and ( 5 ) requesting the Board to provide a Vaughn index of the withheld information.

 

Information in the possession of an agency is exempt from disclosure if it falls within one or more of the enumerated FOIA exemptions. See 5 U.S.C. $$ 552( b )( l )-( 9 ). Exemption 4 permits agencies to withhold "trade secrets and commercial or financial information obtained from a person and privileged or confidential-"5 U.S.C.$ 552(bX4), Information is exempt from disclosure if disclosure is likely either to impair the government's ability to obtain necessary

information in the future or to causes unsubstantial harm to the competitive position of

the person from whom the information was obtained. See National Parks and Conservation Ass'n v. Morton,498 F.2d 765, 770( D.C. cir. l974).

 

GATA or provided to GATA. The Board also has not received any subsequent requests for records pertaining to the topics listed in your request. Accordingly, the Secretary informed you that the Board does not have any records responsive to this portion of your request. I have confirmed the Secretary's determination regarding the lack of any subsequent request for records regarding gold swaps since December 2007.

 

In connection with your appeal, I have confirmed that the information withheld under exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.

 

Exemption 5 of FOIA permits agencies to withhold "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency." 5 U.S.C. & 552 ( b ) ( 5 ). This exemption includes documents that embody the "deliberative process" of the agency before reaching a decision, in order to encourage honest and frank communication within the agency. See, eg., National Wildlife Fed'n v. United

States Forest Serv., 861 F,2d 114, ll8-20 (9th Cir. 1988). Exemption 5 , therefore,

covers "recommendations, draft documents, proposals, suggestions, and other subjective documents which reflect the personal opinions of the writer rather than the policy of the agency." Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 866(D.C.Cir. 1980). "[E]ven factual segments of documents are protected by Exemption 5 from disclosure if the manner of selecting or presenting those facts would reveal the deliberat[ive] process, or if the facts are 'inextricably intertwined' with the policy making process." Jowett, Inc. v. Department of Navy, 729 F. Supp. 871, 877 (D.D.C. 1989). "Exemption 5 serves a number of purposes among which [is] the prevention of premature disclosure of proposed policies before they have been finally formulated or adopted." Wolfe v. Department of Health and Human Serv., 839 F.2d 768,775 (D.C. Cir. 1988).

 

I have confirmed that information withheld from you under exemption 5 in this case is both predecisional and deliberative within fie meaning of exemption 5. Accordingly, this information was properly withheld.

 

As previously noted, the Secretary provided you with 173 pages of documents responsive to your request. You state that these documents appear to be redacted. I have confirmed that these documents were provided to you as they were found in our files, without having been redacted by Board staff. These documents consist of notes for and meeting transcripts of the Federal Open Market Committee ("FOMC") and originated from individuals acting in their capacity as FOMC staff, not Board staff. The FOMC is a separate entity for FOIA purposes with its own systems of records and FOIA regulation. Any redactions were made by FOMC staff, and Board FOIA staff received the documents in redacted form. Therefore, You may wish to contact the FOMC directly at the address below should you wish to request the unredacted portions of these documents.

 

Federal Open Market Committee

Carol R. Low

Secretariat Assistant

20th Street and Constitution Avenue, N.W., Mail Stop 55

Washington, D.C. 20551

 

The lawsuit follows two years of GATA's efforts to obtain from the Federal Reserve and the U.S. Treasury Department a candid accounting of the U.S. government's involvement in the gold market. These efforts parallel those of U.S. Rep. Ron Paul, R-Texas, who long has been proposing legislation to audit the Fed. The Fed has wrapped in secrecy much of its massive intervention in the markets over the last year, and Paul's legislation recently was approved by the U.S. House of Representatives.

[Luke_Wilbur]

Maybe the Federal Reserve Board resolution should be more transparency. They know where I get my money and where it goes. I should know the same about them.

[Guest Mister X]

Derivatives are the singular enabler of this mess. Derivatives are insurance policy banks and large investor take against liabilities to remove them from their balance sheets. The problem is there is no regulation of derivatives that requires the issuers keep a reserve against losses.

 

Without a reserve an insurance policy is essentially worthless. The net effect is banks can buy cheap but useless insurance that technically removes their liability. In short, the net effect is a loss of "moral hazard" of issuing bad loans. Which happened 10 years ago and not when the bail out started.

[Guest Enron Ex]

A full audit will show us just what lays on the books of the Fed's Maiden Lane 1 & 2 facilities AKA off-balance-sheet holdings. This term was used in the late 90's after Enron collapsed due to there off-sheet holdings.

 

A FULL AUDIT of teh Fed will show that the Fed has purchased toxic mortgages from banks and is holding them and taking the risks associated of holding them -- risks that should be borne by the foolish banks that made the loans. I'm glad most of the posters here 'get it' and see right through the dishonest opposition.

[Guest Grrr]

How long can accounting tricks be used to fool the public on bank solvency? Perhaps forever so long as China continues to amass US treasuries in order to maintain their currency peg in order to support their export sector. Wow, Wall Street sure knows how to fleece foreigners (and us) especially when backed up by the public credit card.

 

 

The game is to spend Chinese money as fast as we can. So please, keep my unemployment checks, Cobra supplements, 2nd, 3rd, forth stimulus coming as long as possible!