Senate Ignores Fed's Threats, Passes Audit Amendment 96-0

May 11, 2010

For Immediate Release:May 11, 2010
Contact: Alan Barber, (202) 293-5380 x115

Washington, D.C. - Statement from Dean Baker, co-director of the Center for Economic and Policy Research on passage of the Sanders amendment to the Restoring America's Financial Stability Act of 2010, s. 3217, calling for the Government Accountability Office (GAO) to audit the special lending facilities put in place to support the financial system in 2008 and 2009.

"Ignoring threats from the Federal Reserve Board that an audit would compromise its independence, the Senate voted 96-0 to approve an amendment from Senator Bernie Sanders (I-VT). Sanders' amendment calls for the Government Accountability Office (GAO) to audit the special lending facilities put in place to support the financial system in 2008 and 2009. The audit would review all the facilities that were created beginning in December of 2007. At their peak, these facilities had lent more than $2 trillion to various financial and non-financial institutions. The GAO would make its findings available to the Congress within a year after the passage of the bill while the Fed would be required to publicly disclose information about its lending facilities by December 1, 2010."

"The Sanders amendment was a weakened version of an amendment attached in the House that was co-sponsored by Representatives Ron Paul and Alan Grayson. That measure would have provided for ongoing audits of the Fed by GAO instead of a one-time audit of the special facilities. "

"However, the Sanders amendment also goes beyond the Paul-Grayson bill in requiring the terms of the loans be made fully available to the public, instead of just having an audit report shared with the congressional leadership and relevant committee members. This means that members of the media, researchers in academia and research centers, and the public at large will all have the opportunity to thoroughly scrutinize the actions of the Fed. They will be able to track each loan, assessing the terms applied and the collateral posted. The Fed has contested (and lost and appealed) a civil lawsuit at both the district and appellate level over exactly this issue."

"This amendment should be understood as part of a longer process of increasing the Fed's transparency. The Fed has consistently fought efforts by Congress to make it more accountable starting with opposition to the Humphrey-Hawkins Act of 1978, which required the Fed chair to testify twice a year to give their assessment of the economy. Later, it resisted efforts to disclose more information about the Federal Open Market Committee meetings or to release the transcripts of these meetings when their existence became known."

"In each case, the Fed's claims that greater transparency would jeopardize its ability to effectively conduct monetary policy has been proven wrong, as will undoubtedly be the case here. The country is best served by having an independent Fed, but one that is nonetheless accountable to Congress in the same way that the Food and Drug Administration is or any other government agency. This action by the Senate is an important step toward increasing the level of Fed accountability."