In an overwhelming majority, the U.S. House of Representatives passed the Federal Reserve Transparency Act, H.R. 459 last week. The bill calls for a thorough audit of the institution and would remove an exemption currently in place, allowing the Government Accountability Office to perform a review of the Fed and its monetary policy. The GAO, an independent and nonpartisan congressional agency, currently performs limited audits of the Fed in which fiscal policy is off limits. Although the bill is expected to die in the Senate, the support it gained in the House lays the groundwork for a potential rewrite of the initiative in 2013, especially if November’s election ushers in a Republican majority.
According to Reuters, Fed asset purchases have inflated to $2.8 trillion from roughly $800 billion prior to the financial crisis, a number that has many concerned about the system’s self-regulating policies.
“The Fed creates trillions of dollars out of nothing and gives it to banks. Congress is in the dark. The Fed sets the stage for the subprime meltdown. Congress is in the dark. The Fed takes a dive on LIBOR [London Interbank Offered Rate]. Congress is in the dark. The Fed doesn’t tell regulators what is going on. Congress is in the dark. It is time for us to bring the Fed into the sunshine of accountability,” Rep. Dennis Kucinich (D-Ohio) yelled on the House floor just before the vote.
Despite support from the majority of House Republicans, Rep. Robert Turner (R-N.Y.) expressed doubts about the bill’s intentions and what an audit might bring to the Fed.
“While I have serious concerns about the Fed’s actions during the financial crisis in 2008 and the monetary easing since then, Congress should not attempt to politicize what should be an independent institution,” Turner said.
Last week’s approval in the House included the names of 89 Democrats, which is proof that the push for an audit transcends party lines and ideologies and that this is far from an attempt to politicize the institution.
Washington’s favorite banker, JPMorgan Chase & Co. CEO Jamie Dimon successfully bypassed regular supervision. Trading losses incurred earlier this year, which stemmed from risky investments in the bank’s chief investment office, have now swelled to nearly $6 billion. Not only does Dimon currently sit on the board of the New York Fed, but he has also served as an economic adviser. I’d say the opportunity for such independence has been squandered.
This is only the most recent example of irresponsible trading maneuvers by bankers. Ties to other federal banks are at risk without audit. The notion that the Federal Reserve, the entity that functions as America’s central bank, is above accountability measures such as this one is extremely troublesome. Transparency is an essential component to such a widely unregulated system that has been proven to be irresponsible.