Unwashed Masses 1, Fed 0: Sanders Scores

The effort to audit the Fed got a big boost last night when Senator
Bernie Sanders reached an agreement with Chris Dodd, the chair of the
banking committee. Under the deal, the Government Accountability Office
(GAO) would undertake a full audit of the special facilities created by
the Fed since December of 2007. GAO would make the findings from its
audit available to the Congressional leadership. It would also make
most of the details of the Fed's transactions available to the public.

To cope with the economic crisis, the Fed created 13 different
special lending facilities. At their peak last year, these facilities
had lent out more than $2 trillion. The Fed has only disclosed
aggregate data about these facilities, telling us how much each one
lent out month by month. It has refused to disclose any information
about the specific loans and beneficiaries. This means that we have no
way of knowing how much Citigroup, Goldman Sachs or anyone else
benefited from these facilities.

Under the terms of the deal, by December 1 of this year the Fed will
have posted on its website all the loans that were part of these
facilities. Any interested journalist, academic, blogger or generic
snoop can read through the data and find exactly how much money Goldman
Sachs got, at what interest rate, with what collateral and when they
paid it back. This is a big victory.

The Fed had previously argued that disclosing this information would
compromise its independence. It complained that the having their
borrowings made public would put a stigma on dealing with the Fed, so
that banks and other financial companies would be reluctant to use
special lending facilities in future crises.

Of course these arguments made no sense. This is why a majority of
senators stood behind Sanders and why the House of Representatives
attached an audit bill sponsored by representatives Ron Paul and Alan
Grayson to its financial reform bill. The basic point is simple: this
is our money; we have a right to know what the Fed did with it.

Sanders did make some compromises. The audit has an arbitrary cutoff
date of December 2007. The special facilities date from the summer of
2007. It also only has the audit as a one-off proposition, rather than
establishing GAO audits of Fed operations as an ongoing principle. The
compromise also explicitly exempts open market operations - the Fed's
daily buying and selling of short-term assets to control interest rates
- from GAO scrutiny.

These concessions are unfortunate, the Fed is a creation of Congress
and for that reason it should be subject to the same investigative
procedures as any other federal agency, but they certainly are
secondary compared with getting a full accounting of the money lent out
through the special facilities. It is also important to note that in
one very important way the Sanders compromise goes beyond the original
Paul-Grayson language. Under the compromise, the information about the
lending facilities will be made fully public where everyone can
scrutinize it. The original bill would just have this information made
available to the relevant congressional committees. They would then
have to make a further decision about what information, if any, would
be made public.

There has been a long ongoing battle with the Fed over its policy of
excessive secrecy. Over the years, Congress has pushed back at efforts
to treat the Fed as a holy temple outside of democratic control. It has
made progress at holding the Fed accountable through measures like
requiring the semi-annual Humphrey-Hawkins testimony by the Fed chair
before Congress, the release of full transcripts of Fed open market
meetings (with a 5-year lag), and now this public audit of its special
facilities. There will be further battles and we have a long way to go
before the Fed is as democratically accountable as it should be, but
the Sanders compromise is a big step forward.