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KAI RYSSDAL: You think you’ve got problems with your finances, you’ve got nothing on the Federal Reserve. As Mr. Bernanke and his colleagues set about rescuing the American banking system, they bought trillions of dollars worth of assets and debt from struggling banks. Using taxpayer money, of course. But they never told anybody exactly where all that money went. That doesn’t sit too well with Congress. So next week the House Financial Services Committee will vote on whether to force the Fed to open up its books.
Our Washington bureau chief John Dimsdale reports.
John Dimsdale: Republican Ron Paul of Texas has tilted against the Fed windmill for 11 terms in Congress. His past efforts to subject the central bank to audits never got more than 18 co-sponsors. This time, there are 295, including many Democrats. Paul, a two-time candidate for president, says the difference now is the financial crisis.
Ron Paul: Really what got the attention of the American people was how poorly the Congress took care of the bailout funds — appropriating $700 billion then finding out that nobody knew where it went and a lot of people that didn’t deserve to get bailed out, got bailed out.
Paul’s idea is to give Congress’s watchdog, the General Accountability Office, the right to inspect the Fed’s books and its conduct of monetary policy. Traditionally, the central bank has jealously guarded its autonomy. But to Paul, the bank is too secret.
Paul: They don’t want to tell us what kind of agreements they’ve entered into with other banks, central banks around the world, other governments and other financial institutions. This is pretty important. They’re a government unto themselves.
It’s likely Paul’s proposal will be added to the large financial regulatory reform package that is the next big item on the congressional agenda after health care.
Columbia Business School Professor Charles Calomiris says the Fed’s full-scale intervention in the banking system over the past year does call for more accountability at the Fed. But it shouldn’t be imposed by Congress, which he blames for not dealing with the financial crisis just before last year’s elections.
Charles Calomiris: So the irony here — I would say profound irony and maybe you might even say hypocrisy on the part of Congress — is that Congress’s failure to act and unwillingness to act is the reason why things that should have been handled through direct fiscal actions by Congress had to be handled instead through the twisting of the Federal Reserve Act in various directions, which is exactly what’s opened the door to all this need for transparency.
Calomiris says the Fed itself should be more forthcoming about how it spent bailout money. But the central bank refused to grant a Freedom of Information Act request from news organizations, led by Bloomberg News, for a public accounting of which banks got what help. The Fed argued that if the public knew what banks needed a bailout, customers’ confidence in them would be undermined.
But Bloomberg’s editor-in-chief Matthew Winkler says when the news came out that Citibank received federal aid, its stock price shot up 50 percent.
Matthew Winkler: So it’s hard to argue that the government helping an institution stay afloat is going to cause a run or stigmatize it.
In August, the U.S. District Court agreed with Bloomberg and ordered the Fed to release its lending records. The Fed will appeal.
In Washington, I’m John Dimsdale for Marketplace.