Don't Cede More Economic Authority to Unaccountable Fed

The reviews are in on Barack Obama's plan to address the crisis of Wall
Street speculation and casino capitalism that has dramatically
increased the gap between working Americans and the rich, created
pressure for the deindustrialization of the United States and
depression of wages and income for workers and farmers and created a
nasty banking crisis.

Though even Obama acknowledges that this is the big one -- the issue
that as much as anything led Americans to elect him last fall -- his
"financial overhaul plan" did not merit above-the-fold coverage on the
front page of The New York Times,
the country's "newspaper of record." Two stories from Tehran and one on
a poll about health care reform held the top spots. The overhaul
merited only a feature suggesting -- correctly -- that there was "only
a hint of Roosevelt" in Obama's plan.

In other words, for the great mass of Americans there will be no new
"New Deal." To be sure, there's some good stuff here: creation of a new
agency to help protect consumers of "financial products" and some
stronger transparency requirements, a few more rules regarding banks
and mortgage-backed securities. "But," as Times
writer Joe Nocera notes, "it's what the plan doesn't do that is most
notable."
Nocera focuses, appropriately enough, on the failure of the
administration to do much about the problem -- for taxpayers and for
democracy -- of banks that are "too big to fail."

But the real concern ought not be focused on what this seemingly tepid plan fails to do.

The real concern is what it does.

The plan dramatically increases the authority and reach of the
Federal Reserve, an already too powerful and unaccountable institution
that will -- to the delight of the administration's "Fed men": Treasury
Secretary Tim Geithner and administration economic adviser Lawrence
Summers -- become what the Wall Street Journal says will be "the nation's most powerful financial overseer."

"The proposal, if passed into law, would represent one of the biggest changes ever in the Fed's role," explains Journal
writer Sudeep Reddy. "The central bank would win power to monitor risks
across the financial system, and sweeping authority to examine any firm
that could threaten financial stability, even if the Fed wouldn't
normally supervise the institution. The nation's biggest and most
interconnected firms would be subject to heightened oversight by the
central bank."

In announcing the plan, President Obama claimed "that lines of
responsibility and accountability are clear" with regard to the new
authority being placed in the Fed's hands.

That is a ridiculous statement.

The Fed is famously unaccountable and resistant to transparency.
Even Geithner acknowledged in his Thursday morning session with the Senate Banking Committee that there is a need to look at reforming the Fed's lax governance structure.

But don't expect Geithner of others in the administration to take a
lead when it comes to fixing the Fed, an agency that zealously guards
-- for logical reasons, as its track record is one of frequent missteps
and failures on an epic scale. As Senate Banking Committee chair Chris
Dodd said after reviewing the central bank's significant flaws,
"There's not a lot of confidence in the Fed at this point, and I'm
stating the obvious."

What should be obvious to everyone is that Congress needs to get a
grip on the Fed -- which is structured in a manner so that it faces
little or no congressional oversight -- before it allows Obama's
proposal to advance.

So says Ohio Congressman Dennis Kucinich, the dissident Democrat who
responded to Obama's plan by declaring that: "Before Congress gives the
Fed any new authority, we must thoroughly examine the Fed's response to
our current economic crisis."

Noted Kucinich:

Since August 2007 the Fed has intervened in the economy
in an extraordinary way, as a result ballooning their balance sheet
from $847 billion to more than $2 trillion. Yet, we still don't know
what the Fed has done or who got the money. That is why I introduced
the bipartisan HR 2424, which would grant the GAO the authority to
audit the Fed's response to our nation's economic crisis, a response
that has dwarfed the $700 billion TARP program by more than 2 to 1.

Before we grant the Fed any new authority, we must demand greater
transparency from the Fed; an earnest and open audit of the Federal
Reserve's response to the economic crisis would be a significant step
in the right direction. We can't continue to let the Fed operate within
a black box.

Kucinich has proposed HR 2424,
a piece of legislation that would amend United States Code "to
authorize reviews by the Comptroller General of the United States of
any credit facility established by the Board of Governors of the
Federal Reserve System or any Federal reserve bank during the current
financial crisis, and for other purposes."

Several progressive Democrats and old-right Republicans, including
Texas Congressman Ron Paul, have cosponsored Kucinich's measure.
Additionally, Paul has proposed H.R. 1207,
which would amend the bill "to reform the manner in which the Board of
Governors of the Federal Reserve System is audited by the Comptroller
General of the United States and the manner in which such audits are
reported, and for other purposes."

A majority of House members -- 234, so far, ranging from the most
progressive Democrats to the most conservative Republicans -- have
signed on as cosponsors of this necessary legislation.

This is one of those issues that makes sense to any honest
representative, no matter what the party or what the ideology. Our
elected and reasonably accountable federal officials cannot cede more
control over the U.S. economy to the unelected and unaccountable Fed
without auditing, reviewing and reforming how the Federal Reserve
System operates.