BOSTON - The U.S. Federal Reserve
and U.S. Treasury have doled out trillions in taxpayer dollars to banks
and corporations and now the boom may be falling on what lawmakers say
is a shroud of secrecy that surrounds their actions.
In separate hearings on
Capitol Hill this week, lawmakers expressed support for a bill to make
the Fed's decisions more transparent, and for the findings of a special
inspector general report that calls for greater transparency in the
Treasury's bailout of banks, called the Troubled Asset Relief Programme
(TARP).
"Although
Treasury has taken some steps towards improving transparency in TARP
programmes, it has repeatedly failed to adopt recommendations that [the
special inspector general] believes are essential to providing basic
transparency and fulfill Treasury's stated commitment to implement TARP
with the highest degree of accountability and transparency possible,"
says the report of Special Inspector General Neil Barofsky.
"If
Treasury doesn't put this information up on its website, this committee
will. And if Treasury doesn't turn over this information voluntarily,
Secretary [Timothy] Geithner will be brought before the committee to
explain," said Democrat Edolphus Towns of New York, chair of the House
Committee on Oversight and Government Reform.
In yet another
sign of change to the institutions, President Barack Obama has fielded
a proposal to create a Consumer Financial Protection Agency, which
would rearrange and strip some powers now held by the Fed. The proposal
seems to have wide support among leading lawmakers.
"I don't see
why there shouldn't be 100 percent, crystal clear transparency of the
actions taken at the Fed," said Republican Rep. Bill Posey of Florida.
"The public has a right to know."
Posey made his comments
directly to Fed chairman Ben Bernanke as he presented his semi-annual
report on the economy to a House Committee Tuesday.
Bernanke
argued that actions taken by the Fed in the previous 12 months helped
prevent a wholesale collapse of the global financial system.
"The
financial shocks that hit the global economy in September and October
were the worst since the 1930s, and they helped push the global economy
into the deepest recession since World War II," Bernanke said.
At
the end of 2008, the Fed had 1.5 trillion dollars in short-term loans
outstanding to the nation's biggest banks and financial institutions,
compared to 600 billion dollars today, Bernanke said.
The
attention of the Fed has worked and credit is flowing again among the
largest banks and corporations, and the nation's gross domestic product
will nudge up to two percent and maybe a near-normal three percent in
2010, he said.
The rest of the economy is not fairing as well,
he conceded. The Fed predicts that unemployment will reach 10 percent
by the end of 2009, and foreclosures will continue to rise.
"Financial
conditions remain stressed and many households and businesses are
finding credit difficult to obtain," Bernanke said. It is likely that
the nation will soon see many foreclosures in commercial real estate,
he said.
The Fed expects to raise the interest rate it pays to
banks with accounts held by the Fed, when the economy improves. That
interest rate is now at 0.25 percent.
This and other decisions,
like the short-term loans it makes to banks through its discount
window, should continue to be made in secret, he said.
"We are
taking all the steps necessary to protect taxpayer money. One sensitive
area is to have Congress second-guessing monetary policy," Bernanke
said.
Bernanke was directing his comments at a bill supported by
many lawmakers that would require more auditing of the Fed's actions.
It proposes conducting audits of decisions made by the Fed, including
setting interest rates, six months after the decision is made.
The
bill is sponsored by Republican Rep. Ron Paul, the Texan known for his
outspoken opposition to the deficit and his maverick run for president.
The Fed "doesn't want Congress to know what it is doing", Paul said.
Such an audit could welcome "political interference" in The Fed's decisions, Bernanke warned.
"If
we raise interest rates at a [Fed meeting] and someone in Congress
didn't like the decision and ordered an audit, isn't that
interference?" he said.
Elsewhere in Congress, the Treasury's
actions were under scrutiny, as Special Inspector General Barofsky
detailed the shortcomings of that institution's bank bailout programme.
Twelve
separate programmes recently created at the Treasury have handed out
nearly three trillion dollars to banks, financial companies, auto
companies and insurers, Barofsky said.
The eventual, total
price tag for all the government's bailout programmes could reach 27.3
trillion dollars, if the economy continues to flag, Barofsky said.
The
Treasury has refused to audit the money loaned to the banks to see how
they are spending it. The Treasury has called such audits
"meaningless", Barofsky said.
So Barofsky's office went ahead and pursued the information.
The
office surveyed 360 banks that received Treasury bailout funds and
found that almost all were using the money in ways other than to lend -
which was the intent of the programme. The banks used some of the funds
to lend, but also to purchase other banks, to pay off debts and to
simply hold in reserve should they need the funds in the future.
"TARP
has become a programme in which taxpayers are not being told what most
of the TARP recipients are doing with their money, have still not been
told how much their substantial investments are worth, and will not be
told the full details of how their money is being invested," Barofsky
said.
"The taxpayers now have a 700-billion-dollar spending
programme that's being run under the philosophy of "Don't ask, don't
tell," Towns said.
Sociologist Saskia Sassen of Columbia
University said from her London office that it is important to step
back and look at the big economic picture. The bailout is not going to
ease unemployment or foreclosures, she said.
"The fundamental
problem with the bailout is that it is a financial solution to a non-
financial crisis. The bailout works for the financial sector. Along
with that relative success is growing unemployment among workers and
growing foreclosures that are forecast to reach 10-12 million over next
four years," she told IPS.