In an unprecedented defeat for the Federal Reserve, an amendment to
audit the multi-trillion dollar institution was approved by the House
Finance Committee with an overwhelming and bipartisan 43-26 vote on
Thursday afternoon despite harried last-minute lobbying from top Fed
officials and the surprise opposition of Chairman Barney Frank
(D-Mass.), who had previously been a supporter.
The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan
Grayson (D-Fla.), authorizes the Government Accountability Office to
conduct a wide-ranging audit of the Fed's opaque deals with foreign
central banks and major U.S. financial institutions. The Fed has never
had a real audit in its history and little is known of what it does
with the trillions of dollars at its disposal.
The amendment expressly blocks Congress from interfering with the
independence of monetary policy decision-making, but opponents of the
measure said that the political pressure would inevitably follow.
A desperate, last-minute attempt to thwart the move came in the form
of an amendment championed by Rep. Mel Watt (D-N.C.) and described by
its supporters as more reasonable. On Tuesday, however, the Huffington Post reported that, on a close reading, his amendment would in fact decrease transparency at the Fed by adding additional restrictions.
Backers of the Watt amendment pressed their case on Wednesday by
sending a letter from a "political cross section of prominent
economists" backing a measure like Watt's. HuffPost reported,
however, that those economists might well have be prominent, but they
certainly aren't a "political cross section." Seven of the eight
economists in question have extensive connections to the Fed -- and
half of them are currently on the Fed payroll. Those affiliations were
not noted in the letter.
The playbook in Washington often goes like this: When a measure that
threatens the establishment builds enough momentum that it must be
dealt with, it is labeled as "unserious." The Washington Post editorial board, true to the script, called Paul's measure "an unserious answer to a serious question."
And it particularly rankles the center that a pair of "wingnuts" are behind a successful effort to challenge the prevailing order.
Step Two is for a "serious" compromise to be offered. In this case,
it was Watt's amendment. But by the time the vote was called Thursday
afternoon, committee members had seen through his measure, recognizing
that it was not a compromise effort to bring real transparency to the
Fed but an attempt to further shut the the doors.
Watt amendment will fully obliterate everything 1207" -- Paul's measure
-- "is intended to do," said Paul during Thursday's debate.
For anyone remaining confused, the debate was further clarified by
the central bank itself: Federal Reserve Vice Chair Don Cohn and
General Counsel Scott Alvarez spent much of the day calling committee
members, urging them to oppose the Paul-Grayson amendment in favor of
Watt's, a member of Congress who asked for confidentiality told
Paul's opponents also placed a letter from former Fed chairmen Alan
Greenspan and Paul Volcker on the seats of every committee member. Such
a move is in violation of House rules and Grayson was able to have the
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As the day wore on and support held for the Paul-Grayson side, the
Fed still could hope that both would pass. Watt's amendment, which
included additional restriction, would then trump Paul's.
To counter that possibility, the Paul-Grayson side moved to fully
replace Watt's amendment with theirs, leaving only one amendment to
vote on. The motion carried and the amendment passed in a landslide.
The GOP broadly backed the amendment, though Frank chided them for
finding their love of Fed transparency only after they lost power,
noting that Paul has been introducing some version of the measure since
Frank said he was opposing the Paul amendment because it could be
perceived as influencing monetary policy, which can have inflationary
pressure. "Perception is very important in monetary policy," said Frank.
He urged a no vote, yet 15 Democrats bucked him, voting with Paul. Key to winning Democratic support was a letter posted early Thursday from labor leaders and progressive economists. The letter, organized by the liberal blog FireDogLake.com, called for a rejection of the Watt substitute and support for Paul.
Grayson was able to show Democratic colleagues that the liberal base was behind them.
"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards.