Matt Stoller is a political analyst on Brand X with Russell Brand and a fellow at the Roosevelt Institute. You can follow him at http://www.twitter.com/matthewstoller.
Yesterday, on the House floor, there was a furious debate over the prospect for HR 541, Ron Paul’s bill to audit the Federal Reserve. The Republicans are by and large supportive of this bill, seeking to hamstring the ability of the Federal Reserve to act in secret. Democratic members, were they left to their own devices, would be split. But on votes on bills like this, party leaders can choose to endorse a position, or not endorse a position. Some votes are what’s called “whipped”, and some aren’t. There’s an intricate system of whips and assistant whips and staff networks who encourage members to vote a certain way, so when the party takes a position on an issue, it has a big impact on the final vote count. This is a whipped vote, which means that this is one of those times where the Democratic leadership – Steny Hoyer, Barney Frank and Nancy Pelosi – are putting their stamp on an issue. They have come out firmly for Fed secrecy.
Here’s the whip notice from Democratic leadership on the House side encouraging members to vote against transparency at the Fed.
Subject: WHIP ALERT – DEMOCRATS ARE URGED TO VOTE NO ON H.R. 459 – FEDERAL RESERVE TRANSPARENCY ACT
This week, the House is expected to consider H.R. 459 – Federal Reserve Transparency Act. This bill directs the GAO to complete an audit of the monetary policy deliberations, actions, and related matters taken by the Federal Reserve System before the end of 2012, followed by a detailed report to Congress. Most significantly, the bill would repeal existing restrictions on the GAO’s authority to perform audits of Federal Reserve monetary policy activities.
Like all other major central banks around the world, the Federal Reserve is an independent central bank, and its monetary policy actions are not subject to approval by the Administration or Congress. While Congress has set out the policy goals the Federal Reserve is to pursue – maximum employment and price stability – the ability of the Federal Reserve to pursue monetary policy independent of political influence is critical to its ability to fulfill its dual mandate.
Moreover, Congress already conducts regular and robust oversight of the Federal Reserve and actually expanded GAO’s audit authority two years ago in the Dodd-Frank Wall Street Reform and Consumer Protection Act. It expanded the types of audits GAO may conduct of the Federal Reserve, as well as the data that must be disclosed to the public. The Federal Reserve’s financial accounts have long been subject to audit both by the GAO and an outside, independent audit firm.
This bill impedes the independence of this critical institution. In order for the Federal Reserve to do its job effectively, it should not be subject to short-term political pressures. The experience during debate on the debt ceiling last summer should demonstrate to the American public that House Republicans cannot be allowed to hold our economy or our critical economic institutions hostage in order to further their extreme agenda.
DEMOCRATS ARE URGED TO VOTE NO ON H.R. 459.
If you have any questions please contact: [xxxxx] at 5-[xxxx]
A version of this bill was attached to the Dodd-Frank Act in 2010, and we did see an audit of the Fed’s emergency lending facilities (which I discussed in one of my first blog posts for Naked Capitalism, in Dec 2010). In addition, Bloomberg secured the records of the Fed’s discount window lending during the financial crisis, which it published. Surprisingly, the world didn’t end. Credit didn’t dry up. Money continued to flow. The Fed continued to deliberate. Were Ron Paul’s bill passed and signed into law as it stands, all of this would continue.
So now, Ron Paul is seeking, along with Republicans and roughly 50 Democratic cosponsors, to pass his full bill in the House. It won’t move in the Senate, and Obama would veto it. Regardless, the House voting to independently audit the Fed does reduce the credibility of the Fed as a source of wise technocratic wisdom, placing it squarely in the realm of democratic deliberation. The Fed hates this, captured as it is by large banks. But the LIBOR scandal and Bernanke’s position as a key actor in the Presidential race have positioned the Fed in such a way that political blowback was inevitable. It is a quasi-fiscal agent conducting its own foreign policy, with swap lines open to foreign central banks without permission from Congress and a regulatory apparatus that is designed to protect the capital structure of the big banks.
If I had to guess, what’s happening here is that the Fed is conducing an aggressive lobbying campaign among Democratic leaders. I described the Fed’s legislative activity in this piece, How the Federal Reserve Fights. The central bank is a powerful agent on the Hill, and the people that run the Fed and the big banks and economics establishment who rely on the Fed want to keep it that way. In 2009, the Fed hired Linda Robertson to lobby Congress. Robertson was the former head of Enron’s lobbying operation and a well-known Democratic establishment player. She is well-suited to run such a lobbying effort against Ron Paul’s bill. She did it in 2009 and 2010. I checked her campaign contributions, and she maxed out to both Hillary Clinton and Barack Obama in 2008, while also being quite savvy about distributing money to both parties when necessary (here’s her work at Enron engaging in what looks somewhat close to bribery). Being a key lobbyist for Enron might disqualify you for a job requiring integrity, but it is apparently a mark of prestige in DC to have that on your resume. It means you have juice, the ability to bring in money, and you’ll always be discrete about the deals you cut. Steny Hoyer, the Democratic whip, listens to people like Robertson.
This kind of maneuver, where the Fed is attempting to get the Democrats back in line, isn’t the most significant event in DC these days. Nothing’s going to happen to the Fed legislatively for some time, and both Romney and Obama would probably take the central bank’s side if something did happen. But the Fed has lost a lot of prestige and credibility, and it shows. Congress is losing its fear of discussing monetary policymaking.
UPDATE: The bill passed, 327-97. A bunch of Democrats flipped against an audit. Just glancing at the roll call, Louise Slaughter, Lynn Woolsey, Marcy Kaptur, Heath Shuler, and Donna Edwards (among others) cosponsored the bill either last Congress and/or this Congress, and then voted against it on the floor. Go Team Blue!
UPDATE, AGAIN: The Democratic leaders, despite whipping, barely got a majority of the caucus to vote no. This is a massive failure on their part, and shows how weak they are.