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.