What Happened to Auditing the Federal Reserve?

The public demands it. So does most of the House of Representatives. So why is it an audit of the Federal Reserve is being blocked by the Senate?

Senate Blocks Federal Reserve Audit

Boding poorly for advocates of transparency for the Federal Reserve, Sen. Ben Nelson (D-Neb.) shot down legislation to audit the Fed Wednesday afternoon that's patterned closely on the Ron Paul bill that has already gained majority support in the House.

Sen. Jim DeMint (R-S.C.) tried to tack his version of the Fed audit bill onto a legislative appropriations bill already chock-full of legislation dealing with the authority or funding of the Government Accountability Office. DeMint's bill would have struck legal restrictions preventing the GAO from auditing the Fed and required the office to report a comprehensive audit to Congress by the end of next year.

"Allowing the Fed to operate our nation's monetary system in almost complete secrecy leads to abuse, inflation and lower quality of life for every American," DeMint alleged. "Americans across the nation, regardless of their position on the bailout, want to know where the money has gone, exactly how much has been spent, and what collateral has been taken in return."

Nelson blocked the amendment from consideration under Senate rule 16, which bars policy legislation from appropriations bills. Anticipating the move, DeMint then pointed out a series of policy provisions affecting the GAO's existing audits of the National Transportation Safety Board, local educational spending and small-business participation in the Alaska national pipeline, as well as a Nebraskan earmark. He confirmed with presiding officer Kay Hagan (D-N.C.) that those provisions also violated rule 16 but had not been struck.

"The majority claims that we do not legislate on appropriations bills," DeMint said, chuckling. "Of course, that is false." It didn't help his amendment, though.

Nelson told the Huffington Post Wednesday evening that he blocked the amendment, unprompted by Democratic leadership, on the basis that it had not been duly considered by the Senate. The other GAO provisions made the cut, he said, because they've had time to be debated on the floor.

"I'm not opposed to audits, but I am opposed to having legislation come up this way," Nelson said, adding that the GAO should have "first crack" at any regulation of the Fed.

The Senate version of the audit bill was first introduced by DeMint and Sen. Bernie Sanders (I-Vt.) last month when the Paul bill surged past the 218 votes needed for passage in the House. At the time, the bill seemed an exemplar of bipartisan consensus: DeMint is one of the Senate's most conservative members and Sanders, a self-described socialist, is perhaps the most liberal.

A bi-partisan group of House representatives wrote a letter to President Obama asking some fairly basic questions about the BoA, Merrill Lynch merger and the Federal Reserve's role:

Dear Mr. President,

The House Committee on Oversight and Government Reform recently held a hearing at which Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve, testified regarding his alleged involvement in threats made to the management and board of Bank of America regarding its merger with Merrill Lynch.

While Chairman Bernanke testified that he made no such threats in relation to the merger, there is a considerable amount of other testimony and evidence that calls into question those claims.

As you of course know, the financial services regulatory reform proposal that your Administration put forward two weeks ago contains within it provisions that would grant the Federal Reserve considerable new powers and oversight over a broad swath of industry in this country in order to monitor and take action to reduce “systemic risk” in our economy. Before Congress, working with the Administration, moves forward on granting the Federal Reserve any additional power, however, the actions of the Federal Reserve related to the Bank of America/Merrill Lynch deal need to be fully investigated.

If a thorough investigation of these events brings to light conclusive evidence that the Federal Reserve has overstepped its authority and abused its power under current law (where it already wields considerable regulatory strength and broad authority), it would be inappropriate to grant it sweeping new powers. Even if an investigation does not yield conclusive evidence of wrongdoing, the allegations should give the Administration, Congress, and most importantly, the American people, pause before concentrating extensive new power in the hands of one regulatory entity with little to no direct accountability to the public.

Furthermore, there is additional evidence that the Federal Reserve withheld information from other regulators regarding its interaction with Bank of America. Again, with efforts underway to increase cooperation among regulatory entities, this evidence raises serious questions about the Federal Reserve’s commitment to collaboration with other regulators and about the wisdom of concentrating even more power in this entity.

Given the events of the last few years and the resulting financial and economic turmoil in which our country now finds itself, it is appropriate that your administration, Republicans and Democrats in Congress, and many other public and private entities, engage in a wide-ranging debate about what reforms are needed for our financial regulatory system. Momentum is now beginning to form to enact legislation to implement reforms. No additional powers should be contemplated for the Federal Reserve, however, until this issue is thoroughly investigated and the Federal Reserve is cleared of any wrongdoing. As mentioned above, even if it is cleared, we must ask ourselves, and we believe the American people are asking themselves, do we really want to centralize even more power in this entity?

Remember, the Obama administration wants to give the Federal Reserve even more power, as the ultimate systemic risk regulator. So, the American people cannot find out what is going on, never mind get a equitable systemic risk regulation system where there are checks and balances?