There has been much talk about the need for transparency in the government's dealings. That goes for the Federal Reserve, too. Then-Treasury Secretary Henry Paulson articulated such a view at a Senate Banking Committee hearing on September 23, 2008. "We need oversight," Paulson told lawmakers. "We need protection. We need transparency. I want it. We all want it." Fed Chairman Ben Bernanke echoed the need for transparency the next day at a joint House-Senate hearing, and admitted that "Transparency is a big issue."
But all that talk has thus far failed to translate into action, like when the Fed lent $2 trillion to troubled financial services companies and then refused to disclose to which companies the money was lent. It is simply unacceptable that taxpayers are not allowed to know where their money is going or what kinds of securities are being pledged in exchange for Fed loans. The Fed's opaqueness led Bloomberg to seek information about the central bank's lending under the Freedom of Information Act and to file a federal lawsuit last November seeking to force disclosure.
Action by the Legislature may help to change all this, however. Rep. Ron Paul (R-TX) has introduced H.R. 1207, the Federal Reserve Transparency Act, which would allow for much greater oversight of the Fed's books. The bill currently has 55 co-sponsors. Dr. Paul made the case for his bill in a speech on the House floor on February 26 (search under H.R. 1207 at the Library of Congress Web site for Rep. Paul's speech, the text of the bill, and other information about the legislation.)
Madam Speaker, I rise to introduce the Federal Reserve Transparency Act. Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve's loose monetary policy. How long will we as a Congress stand idly by while hard-working Americans see their savings eaten away by inflation? Only big-spending politicians and politically favored bankers benefit from inflation.
Serious discussion of proposals to oversee the Federal Reserve is long overdue. I have been a longtime proponent of more effective oversight and auditing of the Fed, but I was far from the first Congressman to advocate these types of proposals. Esteemed former members of the Banking Committee such as Chairmen Wright Patman and Henry B. Gonzales were outspoken critics of the Fed and its lack of transparency.
Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations. While the conventional excuse is that this is intended to reduce the Fed's susceptibility to political pressures, the reality is that the Fed acts as a foil for the government. Whenever you question the Fed about the strength of the dollar, they will refer you to the Treasury, and vice versa. The Federal Reserve has, on the one hand, many of the privileges of government agencies, while retaining benefits of private organizations, such as being insulated from Freedom of Information Act requests.
The Federal Reserve can enter into agreements with foreign central banks and foreign governments, and the GAO is prohibited from auditing or even seeing these agreements. Why should a government-established agency, whose police force has federal law enforcement powers, and whose notes have legal tender status in this country, be allowed to enter into agreements with foreign powers and foreign banking institutions with no oversight? Particularly when hundreds of billions of dollars of currency swaps have been announced and implemented, the Fed's negotiations with the European Central Bank, the Bank of International Settlements, and other institutions should face increased scrutiny, most especially because of their significant effect on foreign policy. If the State Department were able to do this, it would be characterized as a rogue agency and brought to heel, and if a private individual did this he might face prosecution under the Logan Act, yet the Fed avoids both fates.
More importantly, the Fed's funding facilities and its agreements with the Treasury should be reviewed. The Treasury's supplementary financing accounts that fund Fed facilities allow the Treasury to funnel money to Wall Street without GAO or Congressional oversight. Additional funding facilities, such as the Primary Dealer Credit Facility and the Term Securities Lending Facility, allow the Fed to keep financial asset prices artificially inflated and subsidize poorly performing financial firms.
The Federal Reserve Transparency Act would eliminate restrictions on GAO audits of the Federal Reserve and open Fed operations to enhanced scrutiny. We hear officials constantly lauding the benefits of transparency and especially bemoaning the opacity of the Fed, its monetary policy, and its funding facilities. By opening all Fed operations to a GAO audit and calling for such an audit to be completed by the end of 2010, the Federal Reserve Transparency Act would achieve much-needed transparency of the Federal Reserve. I urge my colleagues to support this bill.