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Bill would allow Congress to audit Fed

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KAI RYSSDAL: About those central banks and their role in all this that Bob mentioned. The House Financial Services Committee passed a bill last night that would give Congress more power over the Federal Reserve, including the ability to force Ben Bernanke and the gang down at the Fed to open up their books.

Marketplace’s Steve Henn reports.

Steve Henn: Auditing the Fed would shine a bright light on previously secretive transactions with banks and foreign governments. Auditors could examine the Fed’s inner debates on interest rates and find out if the Fed was quietly trying to stop this financial crisis before it got started, or perhaps inadvertently encouraged the kinds of risky investments that lead to the collapse.

William Greider: And the audit will tell us a lot about that.

William Greider is author of “Secrets of the Temple.” He says a thorough audit is overdue. And he believes it’s crazy for Congress to try to reform the financial system until lawmakers fully understand the Fed from the inside.

Greider: And out of that, we, the people, will have a completely different understanding of what happened and what the government ought to do to change things.

But Ted Truman is worried. He’s a former economist who sat in on Fed open-market committee meetings for years. He says sometime soon, the Fed is going to need to raise interest rates.

Ted Truman: When they make that decision, there will be people in the market, and certainly politicians, who will say that’s a mistake. And they will demand an audit.

Truman fears that if Fed policy makers know an audit is coming, they’re likely to be too cautious, delay a rate increase and…

Truman: Interest rates will be kept too low for too long and you will actually feed the next asset-price bubble.

Truman says feeding a bubble is exactly the same mistake the Fed made just four years ago.

In Washington, I’m Steve Henn for Marketplace.

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