Audit the Fed Bill: Attempted Saturday Night Massacre Underway

So get this, sports fans: the day (or maybe two max) before the so-called Audit the Fed bill (a bipartisan initiative to increase transparency) has a torpedo shot at it by a member of the House Financial Services committee, one Mel Watt of North Carolina. Of course, his amendment professes to increase transparence too, but in fact does nothing of the kind, and in fact would reduce the GAO’s audit powers over the Fed.

I’ll admit I’m a bit of a newbie at these matters, but it strains credulity to think Watt came up with this Trojan horse on his own. I’ll bet the Fed provided the language for this stealth operation.

From the Huffington Post:

Rep. Mel Watt, a Democrat from North Carolina, has introduced an amendment intended as an alternative to the measure to audit the Federal Reserve introduced by Reps. Ron Paul (R-Texas) and Alan Grayson’s (D-Fla.) . But instead of increasing transparency, as the amendment claims to do, Watt’s measure would instead make the institution more opaque….

Watt pitched his amendment in a letter to colleagues circulated Tuesday. “While my amendment will certainly fall short of demands by those intent on destroying the independence (if not the existence) of the Fed, the critics of my amendment will have to concede…that my amendment will provide transparency of the Fed’s financial operations that will be completely unprecedented,” he wrote.

In fact, the critics are conceding no such thing. “The Watt Amendment, as written today, actually places new restrictions on the little authority that exists, such as it is, for independent auditing of the Fed,” Grayson said. “It keeps in place all existing restrictions and adds four more. So I don’t see why anybody would reasonably think that it creates unprecedented authority to audit the Fed.”

The devil, as always, is in the details. While Watt’s amendment talks a big game about opening up the Fed to a complete audit, all of the new powers granted must be carried out “each case in accordance with subsections (b) and (e).”

Those subsections of the current law delineate the many restrictions that an auditor confronts when seeking to audit the Fed. Watt’s measure not only leaves those in place but requires all audits to abide by them.

And in addition to the current restrictions in place, it creates new ones. An auditor could not look at loans or liquidity arrangements the Fed enters into, the terms of those arrangements, or the effect of those loans and other liquidity deals on “reserves, the balance sheet or financial condition of a Federal reserve bank or the Federal Reserve System.”

Yves here. That is tantamount to saying you are permitted to operate a strip club as long as the patrons are prohibited from looking at un or underclad bodies. Back to the article:

The Fed has expanded its balance sheet drastically over the last year, entering into exotic swap arrangements and otherwise pumping trillions of dollars into the economy. How it has done so and who has been on the receiving end would remain secret under Watt’s bill.

By contrast, the Paul-Grayson amendment is patterned after Paul’s bill H.R. 1207, which has broad bipartisan support. It has more than 310 cosponsors in a chamber with 435 members.

Paul’s measure would repeal the provisions that Watt’s leaves in place. If every member who cosponsored Paul’s bill votes for it in committee this week, it would have the votes to pass. Watt’s amendment is an effort to peel off votes…

“The new exemptions are described as limited but they are extremely broad,” Grayson said. They’re so broad, in fact, that there would be very little left for an auditor to look into. What could an auditor check up on?

“Count the pencils on the desks,” Grayson speculated. “Perhaps check on proper Metro card usage.”

You can read the full text of the Watt letter at HuffPo.

If this offends you as much as it does me, I hope you’ll make a call or two tomorrow. Here are the Democratic numbers of Congress who support auditing the Fed. They should support the Paul-Grayson amendment and not the Watt amendment. Thanks!

Rep. John Adler, NJ: (202) 225-4765
Rep. Travis Childers, MS: (202) 225-4306
Rep. Steve Driehaus, OH: (202) 225-2216
Rep. Rubén Hinojosa, TX: (202) 225-2531
Rep. Suzanne Kosmas, FL: (877) 956-7627
Rep. Dan Maffei, NY: (202) 225-3701
Rep. Brad Miller, NC: (202) 225-3032
Rep. Walt Minnick, ID: (202) 225-6611
Rep. Ed Perlmutter, CO: (202) 225-2645
Rep. David Scott, GA: (202) 225-2939
Rep. Brad Sherman, CA: (202) 225-5911
Rep. Jackie Speier, CA: (202) 225-3531

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  1. DaveInDenver

    Yves, it would have been nice if you had listed Watts’ largest campaign donors. According to zerohedge, in 2008 Watts’ biggest financial contributors were: Bank of America, Wachovia, Amex, American Bankers Assn. The current #1 donor to Watts is Citigroup.

    That tells us right there all we need to know. Even more disappointing is Barney Frank. I’m sure everyone saw the youtube footage of Frank, in early September, promising a vote in his Committee on Ron Paul’s Bill.

    Once again, given that over 75% of Americans polled support a Fed audit, we see how our political system has deteriorated into Mussolini’s system of fascism – the takeover of political power by big business.

    Too bad Watts’ constituents are too ignorant and uneducated to know the damage that man is doing to our system.

  2. Linden Arden

    The Fed is audited annually in the traditional accounting sense by Price Waterhouse. The result is available to the CBO and Congress.

    What these bill sponsors mean by “audit” is to scrutinize monetary policy and Open Market operations with the intention of intervening politically. If they are successful the result will be permanent political pissing matches. Ron Paul will insist on buying gold, Maxine Waters shoddy MBS, Joe Barton oil rights — everyone in Congress will have an opinion and become financial experts suddenly. Even worse interest rates will be set around elections. Dollar stability would cease to exist.

    The Fed would lose its independence and investors in treasuries would quickly flee.

    It goes without further comment that this “audit” is a terrible idea and will be squashed before it gains momentum.

    1. wethepeeple

      The independence of the Fed is a straw man, red herring, and a propaganda fraud. The independence of the American people is sovereign over this cartel and should be reasserted politically by their right to vote. Do you think that the Fed member banks don’t lobby Congress or the Senate? Is that independence? What you are advocating is maintaining political independence of the Fed via its member banks lobbying efforts. The only tool the American people have to counter the cartel and to hold Congress accountable, is our VOTES! Therefore, you are advocating the American people give up their right and duty to vote and preserve their only ability hold accountable Congress and their agents. If your argument is truly for Fed independence, then make it illegal for any Fed member financial institution to lobby Congress or the Senate, including campaign contributions. The hypocracy of this argument is stunning, and the damage to the sovereignty of the people, over government and its’ agents is devastating. It is anti-American to ask its’ people to give up their political right and duty to vote, while spending hundreds of millions of dollars influencing votes of Congress and the Senate to preserve a secret/private system that controls the credit and money supply of those people who have a constitutional right and duty to protect and maintain their sovereignty over the creation of currency and credit of their nation. You are protecting the financial pimps.

    2. Yves Smith Post author


      Gee, if this is such a horrid idea, why have two former Fed chairmen, namely Alan Greenspan and Paul Volcker, signed a letter supporting increasing Fed transparency?

    3. ArmchairRevolutionary

      I think you have no understanding of the damage that the FED does to this country. By continuously increasing the money supply, they devalue increases in individual productivity. It is the same as stealing.

      Ask yourself why we have inflation. People just assume it should exist. Think about something simple, like a loaf of bread. If the price of grain stays consistent, if bakeries get better at their use of ingredients and management of inventory, if they get better at distribution; in a comptetitive environment, shouldn’t the cost fall? It does not though: that is the FED.

    4. Neslo

      The fed is evil and has recently given trillions of OUR MONEY to those who do not deserve it. You are blind, dumb, or both, or intentionally mean to rob your fellow Americans.

  3. Hugh

    alex beat me to it. This is classic doublespeak. Linden Arden is hilariously channeling captured lawmakers. What Fed independence? It is acting as an extension of the Executive Branch. What is being discussed is fiscal not monetary accountability. We fought a Revolution over this if you had read your history books. Congress not the Executive (or the Fed) was given the power of the purse in something called the Constitution, another piece of history of which you seem unaware. If American taxpayers are on the hook for the Fed’s liabilities, we through our elected representatives have a right to look at what these are and if representatives like Frank, Dodd, and Watt were not so in the bag for the industry they are supposed to oversee we might expect limitations set on the Fed’s fiscal activities.

    And it is totally disingenuous to clutch your pearls over “political pissing matches” given how this is exactly what Bernanke is doing through a stooge like Watt.

  4. Dikaios Logos

    Of course someone else gave him the language: that is always how these things work. I doubt his staff could hatch it ever. But someone, be it the Fed, Citigroup, BofA (congressman from Charlotte here) or the ‘random’ guy in the hot tub with Watt at the gym, definitely gave him the idea.

  5. alex

    Linden Arden: “What these bill sponsors mean by ‘audit’ is to scrutinize monetary policy and Open Market operations”

    Heaven forbid that Congress scrutinize such matters. So what if the Constitution specifically grants the federal government the exclusive power to regulate the value of money?

    The Fed exists by act of congress, not by act of God. While I don’t think it’s unconstitutional that the federal government has delegated it’s power to regulate the value of money, I think it’s more than reasonable for them to stick their noses in when the manure hits the fan. And to change how that power is delegated anytime they deem desirable.

    As for the Fed’s vaunted independence, how’s that worked out lately? The theory is that the Fed is supposed to be apolitical so that monetary policy will be run with an eye on stability and sustainability. How’s that going? Oh, and so they won’t monetize debt. Of course that’s exactly what they’re doing. The thing is they’re only monetizing the bankers debts and not the government’s. Or do you actually buy Helicopter Ben’s claims that this is a liquidity crisis and not a solvency crisis? An $8 trillion housing bubble collapses and we’re supposed to believe that the banks are solvent, and they just need some short term loans to deal with the cash flow.

    It’s the same misuse of monetary policy that the Fed’s vaunted independence is supposed to guard against, except that the bankers get all the benefit instead of the taxpayers.

    1. alex

      Clarification: I said that the Constitution grants the federal government the exclusive power to regulate the value of money. More specifically it grants Congress that power (it appears in Section 8, Powers of Congress, so it couldn’t be much clearer). So if Congress shouldn’t audit the Fed in any way it sees fit, then who should?

    2. MyLessThanPrimeBeef

      Both the Fed and God share this common talent: the ability for ‘creatio ex nihilo.’

      I wonder if the creators of the Fed got their idea from the fantasy of playing God on earth?

  6. Robert

    Yves, not sure where to put this, but do you endorse that Joe Bageant blog post from today’s links? Could you possibly share a few thoughts on what you think of it?

    I didn’t agree with his argument (re: smoking is mean-spirited mass social control) at all.

    1. Yves Smith Post author

      I don’t necessarily agree with the things I put up in Links. Sometimes I put up things that are provocative because I think it’s too easy for all of us to reject ideas reflexively. If nothing else, it forces one to sharpen his case.

  7. Hugh

    I should point out to re pissing matches that if the Fed can’t stand the fiscal heat it should stay out of the fiscal kitchen.

    Unlike alex, I think the Fed is an extra-Constitutional appendage. Its structure guarantees that it is a creature of the banks. It operates for the benefit of these. Is that how advocates like Linden Arden would categorize its “independence”? That it works for the banks when it isn’t working for the banks throught the Executive?

    Its failures in monetary policy and employment vitiate its supposed raison d’être. Why does it exist? Why should it exist?

  8. Peter

    Linden Arden is most likely either a operative for an intelligence agency or one of the simpletons that comprise the Pentagon’s War Bloggers.

    This site, IMO is probably infiltrated by these disingenuous parrots frequently; well, when the topic might generate comments that conflict with the agenda.

    The bottom line is that, the Fed knows “The Secret”. Unfortunately, this secret is apparently so coveted that nearly the entirety of the true power structure in the “civilized” world have all agreed that it must be kept from the empathetic, useless eaters like me.

    If it isn’t money, and it isn’t power, then what is it? I’ll tell you one thing. Israel isn’t permitted to run rampant without knowing the secret. Some even refer to it as “The Israeli Secret.” I, myself would like to know.

    Maybe, if I’m lucky I’ll be visited by one of these illuminated ones……just before my death warrant is issued.

  9. ^WizeUp

    “Linden Arden is most likely either a operative for an intelligence agency or one of the simpletons that comprise the Pentagon’s War Bloggers.”

    I believe this as well, and it is occurring at any site that is questioning the status quo and in particular the feral nerve. These people don’t inform, but merely parrot previously agreed upon “talking points” much like the soundbites on TV, that sound sort of “official like” but as evidenced here, when taken apart fall on their face.

    Keep calling them out.

    1. nowhereman

      I agree totally, and it seems to me that this phenomenon has greatly increased since they (Fed and Treasury) had that meeting with Bloggers a while back, has anyone else noticed that too?

  10. rj

    Too bad Watts’ constituents are too ignorant and uneducated to know the damage that man is doing to our system.

    Watt’s district is an African-American majority gerrymander district. So the only way Watt would ever lose election is in the Democratic primary, which won’t happen.

  11. rj

    Once again, given that over 75% of Americans polled support a Fed audit, we see how our political system has deteriorated into Mussolini’s system of fascism – the takeover of political power by big business.

    Well if 75% of Americans want a Fed audit, perhaps we do it the way that gives the middle finger to Congress – 38 state legislatures call for it and Congress is left out of the process altogether. :)

    1. rj

      Hey, are there any big banks, like, say, BANK OF AMERICA, headquartered in Watts’ district?

      Yes. His district includes the black parts of Charlotte.

      Take a look at the picture of this district, it actually used to look worse than this. There was a lawsuit claiming it was an unlawful gerrymander, court agreed, and this is the result post-lawsuit.

      1. Andrew Foland

        From the Congressman’s Website:

        There are many important landmarks in the 12th District:

        *North Carolina’s tallest building, the Bank of America building in Charlotte (60 stories).

        The 12th District is the second largest banking center in the country (after the New York congressional district in which Wall Street is located).

  12. G Kaiser

    How do some people live with themselves, and more to the point, how can anybody with just half a brain elect such people to public office?

  13. coolbytes

    Rep. Watt is a proxy for Obama. Even if H.R. 1207 and S. 604 are passed, Obama will veto the legislation. The idea is to kill the legislation before it hits his desk.

    1. giggity

      Exactly. Obama, like Bush, is probably never going to find any legislation that he wouldn’t sign, because most is either feel-good tripe or MIC/financial/corporatist handouts that absolutely HAVE to be passed.

      This is why its important that the legislation not even make it to his desk. He can’t afford to look bad. Of course, even if it were to pass unscathed in all its original glory, I’m sure he and the WH would spin spin spin, or issue signing statements to make it useless.

    2. Jolt

      I actually don’t think that Obama would dare to veto it. He has proven that he is not a person who ever takes a stand (other than just talking about it) and take aggressive action – as vetoing the bill would be.

      He will do everything he can to NOT have to take action and will lean on his friends in congress to make sure that either nothing makes it to his desk – or that whatever does make it is so watered-down that he wouldn’t have a problem signing it.

  14. zio

    the Fed needs its power and flexibility: I lost $20000 in one day the last time we had the politicians vote on a important matter and they did not vote as anticipated but they inadvertently postponed… (then they voted as expected and in the meantime I lost money). Democracy is theorically good but too often it is just (not too) masked oligarchy with the additional disadvantage of long working times. Remember that on the ship it is better one bad captain than 500 very good captains that would keep discussing while the ship sinks. And if you think that Congressmen are always better than bankers I don’t know… probably you are a dreamer… look at the elections cost. Maybe in the future we will find a better election system based on the Internet, and on real know-how rather than on savoir-faire and nice smiles on TV.

  15. Seal

    Dear Rep. Sherman

    The indefinite language in your letter follow-up [below] about my call to your office specifically requesting you NOT consider the Watt amendment to H.R. 1207:
    Federal Reserve Transparency Act of 2009 makes me crazy. I expect you to NOT send me some generic evasive letter but something like “Yes, I will do everything I can to see the misguided Watt amendment not be added or in any way shape the original Paul-Grayson bill.

    Tangentially, are you aware the so-called Social Security Trust Fund has now, for the first time had 5 consecutive deficit months?

    Thank you very much for contacting me with your concerns about the Federal Reserve Transparency Act. I appreciate your taking the time to share your views with me.
    I am now a cosponsor of the Federal Reserve Transparency Act. This bill was authored by Congressman Ron Paul of Texas . The bill directs the Controller General to complete, before the end of 2010, an audit of the Board of Governors of the Federal Reserve System and the Federal Reserve Banks.
    Your letter and that of other valley residents prompted me to review the bill and its implications in depth. After this review I have determined that I should do everything possible to get this bill passed, including serving as a co-sponsor.

  16. mannfm11

    I have signed my petitions for the 2 senators in my state. It is clear the bankers don’t want us to know something, maybe that they have been operating without solvency for years.

  17. Dave Raithel

    A bit late – but for the archives at least: The committee bill as passed also includes substantive policy directives: It caps the total value of FedRes loans made to $4 trillion and further requires the FedRes certify that there is a “99% likelihood that all funds it lends will be repaid.”

    Those matters go beyond an “audit.” People may have different reasons for asserting those are good or bad policy matters, but those are prescriptions, and not merely an accounting of who has what.

    Though I am hardly one to much defend the status quo, I relish the irony of those who so traditionally reject Congressional competence rallying to give Congress more economic powers…

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