Senate Ignores Fed's Threats, Passes Audit Amendment 96-0

Statement from Dean Baker, co-director of the Center for Economic and Policy Research on passage
of the Sanders amendment to the Restoring America's Financial Stability Act of 2010, s.
3217, calling for the Government Accountability Office (GAO) to
audit the special lending facilities put in place to support the
financial system in 2008 and 2009.

"Ignoring threats from the Federal
Reserve Board that an audit would compromise its independence, the
Senate voted 96-0 to approve an amendment from Senator Bernie Sanders
(I-VT). Sanders' amendment calls for the Government Accountability
Office (GAO) to audit the special lending facilities put in place to
support the financial system in 2008 and 2009. The audit would review
all the facilities that were created beginning in December of 2007. At
their peak, these facilities had lent more than $2 trillion to various
financial and non-financial institutions. The GAO would make its
findings available to the Congress within a year after the passage of
the bill while the Fed would be required to publicly disclose
information about its lending facilities by December 1, 2010."

"The Sanders amendment was a weakened
version of an amendment attached in the House that was co-sponsored by
Representatives Ron Paul and Alan Grayson. That measure would have
provided for ongoing audits of the Fed by GAO instead of a one-time
audit of the special facilities. "

"However, the Sanders amendment also
goes beyond the Paul-Grayson bill in requiring the terms of the loans be
made fully available to the public, instead of just having an audit
report shared with the congressional leadership and relevant committee
members. This means that members of the media, researchers in academia
and research centers, and the public at large will all have the
opportunity to thoroughly scrutinize the actions of the Fed. They will
be able to track each loan, assessing the terms applied and the
collateral posted. The Fed has contested (and lost and appealed) a civil
lawsuit at both the district and appellate level over exactly this
issue."

"This amendment should be understood as
part of a longer process of increasing the Fed's transparency. The Fed
has consistently fought efforts by Congress to make it more accountable
starting with opposition to the Humphrey-Hawkins Act of 1978, which
required the Fed chair to testify twice a year to give their assessment
of the economy. Later, it resisted efforts to disclose more information
about the Federal Open Market Committee meetings or to release the
transcripts of these meetings when their existence became known."

"In each case, the Fed's claims that
greater transparency would jeopardize its ability to effectively conduct
monetary policy has been proven wrong, as will undoubtedly be the case
here. The country is best served by having an independent Fed, but one
that is nonetheless accountable to Congress in the same way that the
Food and Drug Administration is or any other government agency. This
action by the Senate is an important step toward increasing the level of
Fed accountability."