Economists James Galbraith, Dean Baker and Robert Auerbach write a letter to Larry Summers, urging him to “reconsider the administration’s position of apocalyptic opposition to the bill in Congress that would subject Federal Reserve operations to an audit” (PDF):
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Lyndon B. Johnson School of Public Affairs May 5, 2010 The Honorable Lawrence Summers Dear Larry, We write to urge you to reconsider the administration’s position of apocalyptic opposition to the bill in Congress that would subject Federal Reserve operations to an audit. We have very long experience with congressional oversight of the Federal Reserve. Two of us joined the staff of the House Banking Committee back in 1975 — when Wright Patman was the most prominent backer of an audit bill. We helped author the Humphrey-Hawkins provisions of the Federal Reserve Act, enacted in 1978. One of us – a former doctoral student of Milton Friedman’s at the University of Chicago – worked on Federal Reserve oversight and investigations into the 1990s, under Chairman Henry B. Gonzalez. Our careers have been tied to the cause of establishing a reasonable, forthcoming dialogue between the Federal Reserve and Congress on monetary topics. At every stage, for 35 years now, the Federal Reserve has resisted. In 1975, the Fed resisted regular hearings on the conduct of monetary policy. They were nevertheless established, under H. Con. Res 133, and written into the Federal Reserve Act in 1978. Those hearings continue today, and are widely considered a very substantial policy success – so much so that when the legal mandate briefly expired, the hearings continued without one. Once the hearings were established, the Federal Reserve resisted giving to Congress its economic forecast for the year ahead – a resistance that was only broken by disciplined questioning at the Banking Committee. Today, that information is considered innocuous. In the late 1970s, the Fed resisted releasing the policy directive at the end of each FOMC meeting. It preferred the silly practice of waiting until after the following meeting – even though everyone knew immediately from the movement of the Federal Funds rate what the directive was. Today, the announcement is made immediately, and nobody thinks twice about it. In the 1980s, the Federal Reserve pretended for years that it was not keeping verbatim minutes of the FOMC meetings. This deception eventually caused major embarrassment. Now the minutes are released after a five-year delay – and the only consequence is that from time to time the public becomes aware of incompetence or deception that the Federal Reserve would prefer to conceal. An example was in the press earlier this week, as you surely know. In the recent crisis, the Federal Reserve took extraordinary steps to provide liquidity to the marketplace, both domestic and foreign. These measures involved taking onto the Fed’s balance sheet trillions of dollars of assets – the precise nature of which remains, to this day – a closely held secret. Whatever the merits of keeping this secret, we believe that under law and the Constitution, the Federal Reserve has no right to keep it from Congress. Congress has an unqualified right to review the operations of the Federal Reserve, as it does of any federal agency. If there is truly sensitive information – which we doubt – the Congress has procedures to assure that such information does not leak to the public. Information far more secret – such as covert intelligence operations – is briefed to the appropriate congressional leadership routinely, with no history of inappropriate disclosure. We also believe that there is no case for maintaining such secrecy with respect to Federal Reserve operations during the crisis. On the contrary the extraordinary scale of the operations demand an extraordinary effort to be clear about what they were, what they were for, and why they were necessary. The Government Accountability Office – an arm of Congress – is the correct agency to review these matters. The Paul-Grayson audit bill, now being introduced in the Senate, would set up an appropriate procedure for oversight of these and similar complex operations, for evaluating them in a reasonable way. The fact that we do not sympathize with Congressman Paul on most matters — and do not share his long-term objective to “end the Fed” — has no bearing on the fact that on this issue, he’s correct on the merits. We are entirely confident that once the bill becomes law, the Federal Reserve will resign itself to compliance, and will go on with its effectiveness unimpaired. What they are playing now is an old game, and there is no reason why anyone who has been around should indulge it. With very best regards, Robert D. Auerbach Dean Baker James K. Galbraith |




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Wow. I dig this letter. I think they’ve made some great points. One of the biggest issues I’ve had with the bailout, aside from bolstering private business with public money, is the lack of transparency in what actually happened. We as tax payers foot the bill, but we’ve gotten very little information about how it was done, or what impact it may have on our federal economic system if these assets that the Fed took on go the way of Mortgage Backed Securities.
The fact that the SEC and the Fed don’t understand these derivatives makes it even worse, in my opinion. The Goldman Sachs testimony last week showed us that these companies deliberately contrived products that were so complex that people couldn’t decipher them. But we bought trillions of dollars in similar debt and assets. I’m just assuming these assets are fairly shaky.
I dunno, this issue is so complex that I could rap about it for hours along similar lines. I just wanted to say great letter. Hope those Hopey-Changey folks at the WH get the message.
The Fed took tons of bad debt the banks didn’t want on their books at face value. Not the value the debt was currently worth.
Given the housing market is likely to be bad for years this was a bad move and nobody wants their invovment leaking out not the Obama people, not the Bushies.
I wonder if any Tea Bagger funders where saved by this deal or helped create this deal?
If the Fed owns a bunch of home loan debt know why are they not reducing loan payments with home owners? By reducing the number of home foreclosures you reduce demand and raise home prices for everyone else.
“Apocalyptic opposition”?
Ah so, the Rapture is here, already?
Rendering on to seizing Caesars, without question, is no longer in vogue?
No monetary “policies” without transparency and oversight!
(Doesn’t roll off the tongue quite so nicely as, “No taxation without Representation”, but it IS about the same damn thing.)
Thanks to: Jane and human-centered economists, like Baker and Galbraith and others who have the courage and conviction to speak to truth.
DW
This is a great letter on many levels.
“These measures involved taking onto the Fed’s balance sheet trillions of dollars of assets with an estimated market of approximately $14, give or take a few.”
Being facetious, of course, but it’s a safe bet that there’s plenty of crap in the pile, made worse (obviously) by the very stupid way this whole economic meltdown has been handled. It’s going to be interesting to see how (or even if) the WH responds.
So what’s Obama going to do if he can’t scare up enough Senators to turn against it?
He can’t veto financial reform. He probably can’t sign it with this in it. Can he kill it conference committee?
This is like sending a letter to the neighborhood meth dealer about the dangers of drugs.
Bullshit Bushie signing statement, maybe?
” Ostensibly, the QE program was designed as the first leg in a two-step process to remove the bad paper from the banks balance sheets and then dump it on Fannie Mae and Freddie Mac as discreetly as possible. So far, Bernanke has been relatively successful in convincing people that he was buying the assets to increase lending, which was clearly never the objective. Quantitative Easing was a fraud from the get-go.
No kidding.
[...]
Bernanke has about $1.2 trillion of this paper from these trashheaps, and it’s rotting in his file cabinet. Each day that goes by makes it more dangerous, as mortgages are still defaulting and both Fannie and Freddie are still losing money.
They were both bankrupt in 2008, and they still are.
If Bernanke is not forced to be accountable to the American people, he could easily dump the entire load of trash on Fannie and Freddie, potentially imposing a $500 billion or more liability directly on Treasury. This would make a mockery of Geithner’s claim that “TARP has cost less than expected” and create a rather nasty little funding problem.”
http://www.market-ticker.org/archives/2279-More-On-Why-The-Fed-Needs-Audited.html
Social Security, anyone?
The longer unemployment and home prices are low the more chance of rebellion. Given the Tea Baggers reduced crowds
http://seminal.firedoglake.com/diary/41382
And of course Glen Beck’s 30% drop in the ratings he is the point man for the Tea Baggers.
http://www.businessinsider.com/fox-news-glenn-beck-ratings-down-by-30-this-year-2010-4
A Righty revolution is not going to happen. But the anger is still out there.
White House to Auerbach, et al: “You’re out. Fuck off.”
heh
My understanding is the Fed is holding repos on supposedly AAA rated ABS of which a fair amount probably are MBS. Most of this dreck is AAA in name only. Mark to market valuations would probably be, at best, in the 60% range and could well be half that. The only time I heard the Fed did a test reversing of repos with banks it was a disaster because the banks did not have the capital to redeem them.
Sadly, yes.
Does the Fed want to risk creating a Socialist America? ( They are doing a great job. Can’t find FDL link to poll showing Socialist is almost as popular as Tea Bagger is ) but a declining number for the Tea Baggers is growing strength for Socialists.
He was hoping that his opposition to it wouldn’t be pulled into the light, so other folks would quietly kill it for him.
I think that the history of the HCR debate is a good indicator of what happens next. Much depends on how big of a hold he thinks the financial industry has on his balls, and whether the bill secretly kicks them enough goodies that they’ll want to allow it to become law.
I love that term. It makes the White House sound foolish.
Ah but if we take the loss and give the home owners new loans based on their homes present value we keep them in their homes and raise the value of everyone else’s home.
Of course this mucks up the banks land grab financed by our tax dollar plans.
The author’s are well-meaning and sincere. But in the end, it adds up to more
kabuki “squared”
Yes Rick Santelli’s rant against Obama giving money to Home Owners was the orchestrated event used to roll out the Tea Bagger movement to the public and blamed for stopping Obama from doing anything to help home owners.
To bag Rick and later Cramer got owned by the Daily Show.
Yet still Obama caved.
But James, Dean, and Robert, if I don’t work against this a whole lot of money won’t flow into the Dem Party coffers and you know what that means.
Sincerely,
Larry
There certainly will be losses but they really need to be part of an overall restructuring of the whole financial system. Sticking it on the Fed which eventually means us would just reward the banksters. The whole system needs to be redone.
Money buys elections in low turnout elections with no issues. Too bad unemployment and people lossing their homes are issues.
Money buys TV ads constant repetition of a message on TV works if its true or if the viewer does not have a contrary view much less a personal stake in the issue.
Losing your Job and Home makes it personal. Given the Tea Baggers declining popularity the Blue Dogs who share many of the same issues should also be hit.
Our candidates would clean up if the Dems supported them and the MSM was not bought and paid for.
This election is a test of just how angry and informed voters are.
Agreed no more gambling unless you got the assets to pay in full all claims. The banks can’t even get 10% reserves to cover loses and guys like Buffet think they should not be bound by the very weak rules Obama is backing.
If nothing is done its only a matter of time before we have another bailout.
http://online.barrons.com/article/SB127266756531384973.html?mod=googlenews_barrons#articleTabs_panel_article%3D1
The Financial sector is in another bubble.
Let us not forget who’s responsible for empowering the neighborhood meth dealer.
Obama said “Believe in Change” while ensuring that there’d be as little change as possible to a system that has done so well for the likes of Goldman Sachs.
Can’t we all just support the Dodd bill like we are supposed to. Let’s not make this any trouble. Just support the Dodd bill and then lets move on to the next corporate bill that needs to get rammed through.
p.s. if we do an audit, lets try to make it like a 5-year audit, with a “bipartisan” commission appointed by former Fed officials.
Thanks for the heads up Jane. And definently a big thumbs up for the efforts of Auerbach, Baker and Galbraith.
I sure hope that the folks in Washington don’t expect to be reelected based on a little grandstanding and a crooked Dodd reform bill. The FED audit has strong public support, the folks in Washington are making career ending moves by not supporting a full audit.
yes, we should just sit down and be quiet.
Let the big boys do their thing, Lord knows they are smartest guys in room.
With the PIIGS knee-deep in it and Japan in similarly dire straits, it would certainly seem to the most paranoid among us that the plan is to move to a trilateral model wherein booms, bubbles and busts alternate from North America to Europe to Asia, then back to America etc., in an endless cycle of bailouts and funny money. Throw in high-frequency computer trading and seemingly endless trillion$, sure enough, Joe Bageant looks real sober all of a sudden.
Fortunately, the pushback is gaining in strength and credibility, as the likes of Evo Morales and El Hugo prove over and again. Here is something sure to cheer all gloomy pups: link
Whatever happened to Curly & Moe?
Audit yearly.
Look for a designated “Rotating Villain” in the Senate.
Yes, that would be advised… the best way to keep yourself out of harm’s way.
Floor Debate Progress Report:
At 4 p.m. Eastern this afternoon (Wednesday), the Senate finally cast its votes on the first floor amendment to this financial regulation legislation, passing the Barbara Boxer amendment (forbidding future taxpayer bailouts of banks), with only one vote in opposition.
The Senate then immediately also passed the long-negotiated Dodd/Shelby amendment addressing parts of Title 1 and 2 of the bill (with about 5 votes in opposition) on resolution authority and Too Big To Fail issues, as well as two amendments from Senator Snowe (helping small businesses) by voice vote.
Senator Shelby then called up an amendment the Republicans are offering on the consumer protection provisions of the bill, and Jon Tester got unanimous consent to set that aside and call up an amendment that he’s offering with Senator Hutchison to make FDIC assessments fairer for smaller banks.
Senator Dodd then indicated that the Tester/Hutchison amendment will likely be approved without a vote (meaning by voice vote, or by unanimous consent, I assume), and asked Senators to speak with him and Shelby about the (95, I think he said) amendments he knows of, so that they can “orchestrate” their presentation on the floor to some degree, to keep the debate organized and coherent.
Dodd said, in response to inquiry from Byron Dorgan, that there is not a list of amendments in line for floor discussion and vote, but again assured his colleagues that he is committed to seeing that all Senators get a chance to be heard on their amendments. He asked his colleagues to be considerate of others, by limiting the time for debate they request, so that everyone who wants to will get a chance to amend this legislation.
And then Dodd indicated that “Bernie’s” amendment is probably the next Democratic amendment that he’d like to see get a vote, presumably after the Shelby consumer protection amendment. I assume Dodd was referring to the Audit the Fed amendment of Senator Sanders.
Importantly: No 60-vote threshold has been imposed on any of the amendments called up and voted on so far. [In other words, the Senate has not waived its simple-majority rules to impose a supermajority vote threshold on amendments - we don't know if anyone tried to get such a unanimous consent agreement or not.] To Chris Dodd’s enormous credit. And Dodd reiterated that he hoped to avoid such a supermajority threshold, and thus maintain regular order, and regular simple-majority voting thresholds, as the rest of the amendments come up.
P.S. Senator Whitehouse also discussed an amendment he’s offering, to close the loophole created by a 1978 Supreme Court interpretation of the definition of “location” in a Civil War-era banking law – closing this loophole would prevent credit card companies from continuing to avoid state regulations and consumer protections where their customers reside by moving company headquarters to a state with few or no consumer protections or regulations. It sounds like an excellent amendment, but more to the point, for the purposes of this comment, the very-effective presentation by Whitehouse was vastly superior to other recent presentations about this bill and its amendments by Whitehouse, which were infused with partisan venom to a deplorable degree.
Sniff, sniff. Do I detect the stink of a nihilist?
Y’all might want to check out Comment #85 to Masaccio’s April 23 post on Obama’s Approach to Financial Reform. Just sayin’ . . .
Dean Baker is the most under-recognized Economist of the last 15 years. He’s been dead-on right about EVERY large economy changing event BEFORE it was fashionable, and has written & spoken clearly of his findings and opinions. Yet, Dems didn’t even invite him to their summer, ’08 economic pow-wow. The Dems have lost their ideals, their soul, their heart. They should all be tossed out of office at the earliest opportunity.
Is that all you got? Weak.
Thanks for the link Great White Dude. When the American Empire is over (it wont be long) and when the people are poor and oppressed (and they know it) the pink tide will flow into El Norte. The Americas will be united.
I did check it out and I can’t tell if the person is deliberately trying to screw up the discussion or genuinely can’t respond to what people actually say, can’t answer their questions and genuinely believes his mythical idea of what progressivism is. Probably the former is true. But I’m responding to you razorbrain to say you fought the good fight on this, but perhaps let it go on too long. The result is that he/she coopted the conversation, which should have been on constructive actions progressives can take in the face of Obamaism and the Dem Party’s apparent assumption of the role of Republican twin. Try to change the Dem Party. Go the third party route. That kind of thing. As you know, this time is one of acute crisis for the left when difficult soul-searching is needed. Debating someone who has a wacko definition of what progressivism is is a monumental waste of time, IMO. Just ignore him/her.
Cybieharry, I give you props for being able to spell (unlike most on this site). But, I am telling you, I am years ahead of you in terms of what Progressivism will be known as. Give it a few years, and you’ll see. You do know that the meanings of terms change over time right?
I fully expect some of you to argue and try to cling onto the term that you’ve wrapped your identity around. Yeah, it sucks (for you) that Progressivism will be known for people like Obama and myself. But, in your gut, you know it’s true. Sorry!
Keep on with your soul-searching. I am sure you’ll find some rationalization or religion to give yorself some modicum of value (rolling eyes).
Take your point, and would ordinarily agree with you, but that particular person always hijacks every posthe appears on, and his obvious purpose is to disrupt and derail. I don’t care how someone defines progressive, fair debate, but when someone self-IDs as a “nihilist,” that means he is all about taking away the freedom of others by acquiring as much power as possible over them (which he openly admits is his belief), or is about having an impulse to destroy (dictionary def). So, if that is who comes here to disrupt and hijack threads, many of them, many, not just that one, I think all should know he subscribes to a loathsome purpose (his right) so we can make an informed decision as to whether we want to waste our energy on him (our right).
~~~ModNote: insults directed at other participants are prohibited, and subject to moderation.
If you have issues to discuss, by all means, discuss them. If you have barbs only, or seek to turn a thread into an argumentative mess, TAKE IT OUTSIDE.~~~
With all due respect, Mr. Moderator, if you were to honestly assess this thread and who exemplifies person who “(has) barbs only, or seek to turn a thread into an argumentative mess” you would find that it is not my comments that need deleting.
I suppose it upsets the choir to have a point of view that is left of where most people here are. Just be straightforward and say “We censor people unless they maintain and present the same thoughts and viewpoints we like.” Or, maybe there is more nihilist / control behavior around than razorbrain can fathom.
Finally, I did not self-ID myself as a Nihilist. Razorbrain can only resort to distortions (typical of those who have no argument).
~~~ModNote: If you have a topical or constructive comment, make it.~~~
Scroll trolls. Ignore them they get all bunged up.
~~~ModNote: insults directed at other participants are prohibited, and subject to moderation.
If you have issues to discuss, by all means, discuss them. If you have barbs only, or seek to turn a thread into an argumentative mess, TAKE IT OUTSIDE.~~~
I am sure your productive on-topic comment will soon be deleted just like mine have been. Then again… you’re probably a ~~~EDITED IN MODERATION~~~ of the FDL choir.
“If it makes it easier to understand, for the purpose of this thread we can call Obama (AND MYSELF) nihilists.” (caps mine)
Just setting the record straight.
From the citation I referenced in my Comment#36 above, second paragraph.
I’m finished with this guy. (My Cousin Vinny)
Checks and Balances is what makes the whole system accountable and honest. This system enshrined in our constitution enabled our country to thrive without suffering from phases of dictatorship like some of the other countries did in the world.
Audit of the FED by our elected representatives enables all of us including other countries in the world to have faith in this important institution. Most importantly it keeps the FED honest and keeps its long term viability in-tact.
If the books are bad so be it. Let my representatives know it, tell them the reasons and collectively work on correcting it. Its better to know when the problem is manageable and correct it than hide it, wait for it to grow, collapse the whole economic system and go through hyper-inflation due to lack of faith in monetary policies.
Audit the FED but if needed work with senate and congress on the methodology to keep the information secret from the public. This is good for the FED, also for the whole country and rest of the world.
So, what does “for the purpose of this thread” mean to you?
The story will become crystal clear when those who vote against this amendment stand butt ass naked in front of the American taxpayers.
Senator Sanders ripped it up on Washington Journal this morning. Unable to link (folks should listen to Sanders)
Thursday, May 6
Today
7:45am – Sheila Bair, Federal Deposit Insurance Corporation (FDIC), Chairman
8:30am – Rep. John Culberson (R-TX), 10th Amendment Task Force, Co-Founder
9:15am – Sen. Bernie Sanders (I-VT)
WE SHOULD ALL BEING CALLING AND HAMMERING OUR SENATORS ON THIS ISSUE TODAY AND EVERYDAY. AUDIT THE FED NOW
This morning on Washington Journal Senator Bernie Sanders compared Wall Street bankers, traders etc as “heroin addicts” And the American taxpayers ended up supplying more heroin.
Will Former Secretary of the Treasury Hank Paulson be held accountable? He was the inside Goldman Sachs heist man. Basically telling our Reps hand over the keys to the Treasury now, or it is only going to hurt more later.
Will never forget on one of Bill Moyers programs it was reported that Paulson had said that the efforts in the bailout legislation to block executive compensation would not “hold water”
Paulson was the inside heist banker
Where the hell were you the last eight years?