Congress still has a long way to go in representing their constituents and not their special interest benefactors (eg. cram down bill) but we should give credit when credit is due. Yesterday, two potentially significant pieces of legislation were signed by the President: Helping Families Save Their Homes Act of 2009 and the Fraud Enforcement and Recovery Act of 2009. These pieces of legislation are potentially significant not so much because of their main objectives (which are significant in their own way) but for two potentially powerful amendments included in each.
Helping Families Save Their Homes Act of 2009
Senator Chuck Grassley (R-IA) submitted an amendment (amending Section 714 of the United States Code) that would have given significant auditing authority to Comptroller General/Government Accountability Office (GAO) over the Board of Governors of the Federal Reserve System. Here is the original language of the amendment.
Senator Grassley’s original intent of the amendment was very admirable and much needed. He wanted the Comptroller General/GAO to examine all of the risks that taxpayers were assuming by the Federal Reserve’s emergency actions. This would have added an incredible amount of transparency to the actions of the Fed to date.
However, the powers that be, particularly the financial oligarchy, could not allow such transparency. But they knew they couldn’t kill the amendment either; so they did the next best thing. Senator Richard Shelby (R-AL) negotiated a watered down version of Grassley’s amendment. Here is Senator’s Grassley’s statement on his amendment.
Based on the Senator Grassley’s (watered down) amendment this is what we are left with:
TITLE 31--MONEY AND FINANCE
CHAPTER 7--GOVERNMENT ACCOUNTABILITY OFFICE
SUBCHAPTER II--GENERAL DUTIES AND POWERS
Sec. 714. Audit of Financial Institutions Examination Council, the Board of Governors of the Federal Reserve
System (in this section referred to as the ‘Board’), Federal reserve banks, Federal Deposit Insurance Corporation, and Office of Comptroller of the Currency
(a) In this section, ``agency'' means the Financial Institutions Examination Council, the Board of Governors of the Federal Reserve System (in this section referred to as the ‘Board’) , Federal reserve banks, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Board and Federal reserve banks may not include—
(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this
(c)(1) Except as provided in this subsection, an officer or employee of the Government Accountability Office may not disclose information identifying an open bank, an open bank holding company, or a customer of an open or closed bank or bank holding company. The Comptroller General may disclose information related to the affairs of a closed bank or closed bank holding company identifying a customer of the closed bank or closed bank holding company only if the Comptroller General believes the customer had a controlling influence in the management of the closed bank or closed bank holding company or was related to or affiliated with a person or group having a controlling influence.
(2) An officer or employee of the Office may discuss a customer, bank, or bank holding company with an official of an agency and may report an apparent criminal violation to an appropriate law enforcement authority of the United States Government or a State.
(3) Except as provided under paragraph (4), an officer
or employee of the Government Accountability Office may not
disclose to any person outside the Government Accountability
Office information obtained in audits or examinations conducted under subsection (e) and maintained as confidential by the Board or the Federal reserve banks.
(4) This subsection shall not—
(A) authorize an officer or employee of an agency
to withhold information from any committee or subcommittee
of jurisdiction of Congress, or any member of
such committee or subcommittee; or
(B) limit any disclosure by the Government Accountability
Office to any committee or subcommittee of jurisdiction
of Congress, or any member of such committee or
(d)(1) To carry out this section, all records and property of or used by an agency, including samples of reports of examinations of a bank or bank holding company the Comptroller General considers statistically meaningful and workpapers and correspondence related to the reports shall be made available to the Comptroller General. The Comptroller General shall have access to the officers, employees, contractors, and other agents and representatives of an agency and any entity established by an agency at any reasonable time as the Comptroller General may request. The Comptroller General may make and retain copies of such books, accounts, and other records as the Comptroller General determines appropriate. The Comptroller General shall give an agency a current list of officers and employees to whom, with proper identification, records and property may be made available, and who may make notes or copies necessary to carry out an audit.
(2) The Comptroller General shall prevent unauthorized access to records, copies of any record, or property of or used by an agency that the Comptroller General obtains during an audit.
(3)(A) For purposes of conducting audits and examinations
under subsection (e), the Comptroller General shall have access, upon request, to any information, data, schedules, books, accounts, financial records, reports, files, electronic communications, or other papers, things or property belonging to or in
(i) any entity established by any action taken by the
Board described under subsection (e);
(ii) any entity receiving assistance from any action
taken by the Board described under subsection (e), to the
extent that the access and request relates to that assistance;
(iii) the officers, directors, employees, independent
public accountants, financial advisors and any and all representatives of any entity described under clause (i) or (ii); to the extent that the access and request relates to that assistance;
(B) The Comptroller General shall have access as provided
under subparagraph (A) at such time as the Comptroller General
(C) Each contract, term sheet, or other agreement between
the Board or any Federal reserve bank (or any entity established by the Board or any Federal reserve bank) and an
entity receiving assistance from any action taken by the Board
described under subsection (e) shall provide for access by the
Comptroller General in accordance with this paragraph.
(e) Notwithstanding subsection (b), the Comptroller General may conduct audits, including onsite examinations when the Comptroller General determines such audits and examinations are appropriate, of any action taken by the Board under the third undesignated paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 343); with respect to a single and specific partnership or corporation.[emphasis added]
Despite having been watered down, this amendment does allow the GAO to conduct audits of JP Morgan/Maiden Lane I, AIG/Maiden Lane II and III, and Bank of America’s and Citigroup’s residual financing. This is a good start but we deserve to know more about the Fed’s emergency actions. After all, who bails out the Fed if (when) it tanks from all the toxic waste on its balance sheet?
FYI. Congressman Ron Paul (R-TX), no fan of the Federal Reserve System, has proposed a pretty strong amendment to the above Section 714 called the Federal Reserve Transparency Act of 2009 (H.R. 1207). This bill has wide spread bipartisan support (both progressive and conservative) in the House. It has 175 co-sponsors. Transparency is a good thing.
Fraud Enforcement and Recovery Act of 2009
There is a very important amendment to this Act that apparently the Obama Administration doesn’t like or maybe is a little nervous about. The President actually issued a signing statement when he signed this bill. This bill created a 10 member commission with subpoena power to examine the financial crisis. Here is the language of the Act – Section 5.
There is precedence for such a commission. We had something similar in the 1930’s called the Pecora Hearings. If the Financial Crisis Inquiry Commission is as successful as the Pecora Hearing were in uncovering the abuses of the financial conglomerates it will go a long way to forcing Congress and the Administration to actually produce real and significant regulatory reform.
The 1930’s were a long time ago especially for a town with such a short term memory and today the financial oligarchy is well represented in Congress and the Administration. It was amazing that this amendment was passed. This Financial Crisis Inquiry Commission has the potential to truly have a positive impact on the future direction of our economy but my money is the financial oligarchy that they will do something to diminish the effectiveness of such an inquiry. I hope I am wrong.
P.S. I am considering doing a follow-up to this that covers the functions of the Fed as defined in the Federal Reserve Act of 1913.