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
SUBTITLE I--GENERAL
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
subsection.(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
subcommittee.’’(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
use by—(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;
and(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
may request.(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.
Comments
Democrats better be careful.
They are giving the republicans an opening to capture populist positions/rage.
RebelCapitalist.com - Financial Information for the Rest of Us.
on Professional labor issues
Grassley is more of a Labor Dem than most Democrats. Seriously. He has pushed and written up legislation, along with Durbin (who is more than willing to gut it and sell us down the river for "amnesty" per the demands of global labor arbitrage) to reform the H-1B and L-1 guest worker Visa programs. He has written letters to NASSCOM, the Indian outsourcers, all sorts of press releases trying to get something done.
So, in spite of his GOP title and the periodic Grassley blast from the left, because of this support for Professionals in the U.S. he's a godsend.
He even took on Microsoft...who magically pulled some small center they were going to build in Iowa....at the same time....so it's pretty clear even when under pressure, he didn't back down.
Overall I consider Grassley a Populist...to the right, vs. our typical neocon, corporate GOP.
He's also been sitting on that finance committee to the point cobwebs grow on him, so he is extremely adapt and let's face it....navigating those waters has to be one of the hardest jobs in Congress.
New Legislation
Got an inside track on a new bill they are trying to publicize. I need to read the bill first before I think it's the cat's meow, but Public Citizen, with their legislative analysis teams is usually spot on in bill endorsements. Note, NC is endorsing (and haven't we loved their coverage on the entire financial crisis?). We'll see if Bernie Sanders introduces it in the Senate (or other workin' for the folks Senators).
Here is the raw Email, which you may want to check out the bill in thomas.gov and cover yourself in a blog post:
===========================================================
Rep. Grayson just sent out the following letter to fellow Democratic members of Congress encouraging them to co-sponsor HR 1207, the bill to audit the Federal Reserve , a bill authored by Ron Paul and cosponsored primarily by Republicans . It is co-signed by a mixture of liberal economists, public interest groups, bloggers and civil libertarians. This is the first time as far as I know that a generally liberal coal ition has encouraged Democrats to pressure the Federal Reserve.
Tyler Durden of Zero Hedge and Jane Hamsher of Firedoglake have posted on it and are collecting signatures.
Tyler Durden: http://zerohedge.blogspot.com/2009/05/time-to-make-federal-reserve.html
Jane Hamsher: http://firedoglake.com/2009/05/21/alan-grayson-says-audit-the-fed/
Petition: http://action.firedoglake.com/page/content/graysonletter/
Bring Some Accountability to the Federal Reserve
Letter endorsed by:
Dean Baker, Center for Economic Policy Research
James K. Galbraith, University of Texas and Senior Scholar of the Levy Economics Institute
Bob Borosage, co-director, Campaign for America's Future
Tyler Durden, Zero Hedge
Bill Black, Associate Professor of Economics and Law University of Missouri-Kansas City
Jane Hamsher, Firedoglake
Glenn Greenwald, Salon
US PIRG
Public Citizen
A New Way Forward
Consumer Action
Dear Colleague,
I write to ask you to co-sponsor HR 1207, the Federal Reserve Transparency Act, which would give the Government Accountability Office the authority to audit the Federal Reserve and its member components, and require a report to Congress by the end of 2010.
The Federal Reserve System operates as the central bank for the United States, managing the economy’s money supply and overseeing the banking system. Until recently, the Fed has not picked winners and losers when distributing money, nor has it brought credit risk onto its balance sheet. It has slowed or stimulated the economy by raising or lowering interest rates. Since March 2008, however, the Fed has resorted to using its emergency powers to pick winners and losers, and to take massive credit risk onto its books. Since last September, the Fed’s balance sheet has expanded from around $800 billion to over $2 trillion, not including off-balance sheet liabilities it has guaranteed for Citigroup, AIG, and Bank of America, among others. The bank is also ‘monetizing’ the debt of the United States Government by purchasing massive amounts of agency and Treasury bonds. An audit is the first step in bringing this unaccountable system under the control of the public, whose money it prints and disseminates at will.
The Federal Reserve is an odd entity, a public-private chimera that controls the US monetary system and supervises the banking system. The system is governed by a Board of Governors, with twelve regional reserve banks that serve a supporting role. While the Governors are appointed by the President with confirmation by the Senate, the regional Reserve Banks have boards of directors chosen primarily by private banking institutions. Right now, for instance, the CEO of JP Morgan, Jamie Dimon, serves on the Board of Directors of the New York Federal Reserve Bank, as did Goldman Sachs Director Stephen Friedman.
This creates striking conflicts of interest and unseemly appearances in the management of what is ultimately the public’s money. Consider:
· JP Morgan’s CEO was a board member of the New York Fed even as he negotiated on behalf of JP Morgan with the New York Fed for a $29 billion bridge loan to allow his company to take over Bear Stearns.
· New York Fed and Goldman Sachs board member Stephen Friedman purchased 37,300 shares of Goldman Sachs stock in December at the same time as Goldman received permission to convert to a bank holding company regulated by the Federal Reserve. Friedman at the time was also overseeing the selection of a New York Federal Reserve President to replace Tim Geithner, and the New York Fed ended up hiring another alumni from Goldman Sachs.
· According to the bank’s website, the two “class B” directorships of the New York Fed that are supposed to represent the public are vacant.
· Enron’s Jeff Skilling was on the board of the Dallas Federal Reserve Bank.
Criticism of banker influence and control of our monetary system is not new. However, the urgency of the financial crisis and the actions of the Fed picking investment bank winners and losers have changed the nature of the criticism. The Senate just passed a non-binding resolution requiring more transparency at the Federal Reserve in its Budget Resolution.
Still, neither the GAO nor the Federal Reserve Inspector General has audited the books of the Federal Reserve or its regional banks. The Financial Services Subcommittee on Oversight and Investigations held a recent hearing with Federal Reserve Inspector General Elizabeth Coleman. In that hearing, Coleman could not tell me who had received over a trillion dollars in Fed lending, what kind of losses the bank had suffered on its $2 trillion portfolio, appeared unaware that the Fed engages in trillions of dollars in off-balance-sheet commitments, and was not investigating the role of the Fed in allowing the collapse of Lehman Brothers. Coleman’s responses were so remarkable that when the video of this exchange was put on Youtube, it was watched more than 350,000 times.
Furthermore, the Federal Reserve has refused multiple inquiries from both the House and the Senate to disclose who is receiving trillions of dollars from the central banking system. The Federal Reserve has redacted the central terms of the no-bid contracts it has issued to Wall Street firms like Blackrock and PIMCO, without disclosure required of the Treasury, and is participating in new and exotic programs like the trillion-dollar TALF to leverage the Treasury’s balance sheet. With discussions of allocating even more power to the Federal Reserve as the ‘systemic risk regulator’ of the credit markets, more oversight over the central bank’s operations is clearly necessary.
The net effect of recent actions has been to isolate financial policy-making entirely from democratic input, and allow the Treasury Department to leverage the Federal Reserve’s balance sheet to spend money it cannot get appropriated from Congress. The public does not know where trillions of its dollars are going, and so has no meaningful control over the currency or this unappropriated “budget”. The extraordinary size of these lending facilities combined, the extreme secrecy, and the private influence is a dangerous seizure of Congress’s constitutional prerogative to appropriate public monies and control the currency.
An audit of the Federal Reserve may not be sufficient to control this sprawling system or bring it back into balance, but it is a start. The public has a right to know to whom the US government is lending trillions of dollars. Dancing around this issue with technocratic terms like ‘increasing liquidity’ is preventing a full and long overdue public debate on the role of the Federal Reserve and the influence of private banking interests in the governing of our economy.
I encourage my colleagues to support H.R. 1207, so that we can bring some transparency to our banking system and allow the public to have a real debate over the fundamental direction of our nation’s political economy.
Regards,
Alan Grayson
Member of Congress
There is a link to the actual language
in the above post.
RebelCapitalist.com - Financial Information for the Rest of Us.
isn't that the Grassley amendment?
It's the Grassley amendment that managed to just get signed into law and escape the lobbyist's wrath (amazing in and of itself), where the Grayson "request for co-sponsors" invite letter that I posted in the above comment, is for a brand new separate piece of legislation. Just came out today.
Actually H.R. 1207 was first
offered in February. The link is in the paragraph that begins "FYI".
RebelCapitalist.com - Financial Information for the Rest of Us.
Sorry, missed it
I'm so stressed, I need income, messing with my ability to even read!
Ok, here's my thing, which is to audit those structured finance models themselves. I look at this $55 trillion "market" and the fictional mathematics and think Good God, now who is validating these models and making sure they are even valid?
I know that's major geek but to me, it's a huge fundamental problem.
To answer your question re: who
is validating these models: BlackRock.
RebelCapitalist.com - Financial Information for the Rest of Us.
Supporting to audit the FRB?
You better hide because the helicopters are on their way to get ya.
Personally I am all for it but I already have the helicopters and an FBI profile.
Oh no, there they go again.
The Fed is considering using the Term Asset-Backed Loan Facility for residential mortgage backed securities (RMBS). This is really scary:
Ya think! Proper credit analysis! WTF!?!
Again, who bails out the Fed if their balance sheet gets loaded up with toxic waste?
RebelCapitalist.com - Financial Information for the Rest of Us.
Grassley and Shelby Amendment are the same thing
The article above is correct although it confuses who's who. Grassley is the one who proposed the watered down amendment to the Sunshine act -S604, introduced by Sanderson, which was word for word with hr 1207. But like it said above, the powers that be knew they couldn't stop it so they got their stooges Grassley and Shelby to water it down. Interesting how their trying to play it off like Grassley is the juggernaut. Hopefully, people are smarter than that.
because he could not get the votes to pass the full
The Senate is different from the House and there were a whole group of Senators who would only vote for the watered down one. So, he went back to committee. That is why you have the scribbled Grassley notes, they were talking to other Senatorial offices to see what they could get passed and scratching the bill as they went on those meetings.
What I do not believe is fair in that article is they blame Shelby, who clearly is royally pissed at this entire bail out as well as the Fed, and they are not pointing to the other committee members as well as the entire Senate as being the real bad guys.
That's how I understand what happened, they were negotiated with the full Senate and then going back to committee and watering it down in order to get something passed.