bobbyw24
05-13-2009, 04:49 AM
http://www.cbonds.info/all/eng/news/index.phtml/params/id/432326
Is it time to stress-test the Federal Reserve?
Commentary: Congressional critics ramp up efforts to corral central bank
WASHINGTON (MarketWatch) -- While not quite in the same league as Tina Fey's take on Sarah Palin, Saturday Night Live's spoof on the banks' stress tests last Saturday was pretty funny.
Will Forte as Treasury Secretary Timothy Geithner explained that the stress test went from being a graded test, to a pass/fail, to a pass/pass-with-an-asterisk, to a pass/pass system, and then he congratulated all the banks for passing. Watch the video.
Time will tell how useful the stress tests were, but few serious economists or analysts believe the banking problem is solved.
In the meantime, there's a groundswell in Congress for closer scrutiny of the stress tester - the Federal Reserve itself. America's central bank is a curious public-private sector hybrid, largely free from any governmental oversight or control.
But as the steward of the nation's money, the Fed's actions in recent months to print hundreds of billions of dollars in new money seem to cry out for some sort of democratic review. Congress, after years of fawning over Fed Chairman Alan Greenspan as the maestro of monetary policy, has learned the hard way that, while trust is good, control is better.
So there is a bill before Congress that calls for a full-scale audit of the Federal Reserve System -- the Federal Reserve Board based in Washington, and the 12 regional Federal Reserve Banks.
That bill, H.R. 1207, now has 149 cosponsors and counting. It was introduced by Texas Rep. Ron Paul, now nominally a Republican, but a former leader of the Libertarian Party who is still best known for his strong libertarian principles. Read more about the bill.
Paul, as his fans well know, would just as soon abolish the Fed as look at it, but this issue gives him a chance to come in from the political fringe and at least start a process the could result in changing accountability at the Fed.
Paul's bill directs the Government Accountability Office to audit the Federal Reserve Board and regional banks by the end of 2010 and present a detailed report to Congress. The audit would look at the Fed's actions during the crisis and its decision-making process.
The 149 cosponsors include all but three of the 29 Republican members of the House Financial Services Committee, starting with ranking member Spencer Bachus of Alabama. While the bulk of the bill's supporters are Republicans, 20 House Democrats have also signed on as cosponsors. The companion bill in the Senate, S. 604, introduced by independent Bernie Sanders of Vermont, has no cosponsors yet.
House Financial Services Chairman Barney Frank, D-Mass., has promised that the bill will get a hearing in his committee. "I hope we're going to put some limitations on this power of the Federal Reserve to lend any money to anybody," Frank recently told an audience in Boston, "and to significantly increase the auditing and transparency at the Federal Reserve."
Paul made it clear what he was after when he introduced the bill. "The Treasury gets hundreds of billions, which is huge, of course," Paul said in a speech on the floor, "and then we neglect to talk about the Federal Reserve, where they are creating money out of thin air, and supporting all their friends and taking care of certain banks and certain corporations. This, to me, has to be addressed."
Paul has some support outside Congress as well. No less an authority than former Fed Chairman Paul Volcker thinks the Federal Reserve will come in for some congressional review after its emergency actions during the crisis.
"I think for better or for worse we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed," Volcker said last month in a speech at Vanderbilt University.
Volcker said that the political system could not "tolerate" the degree of activity that the Fed has undertaken in conjunction with the Treasury Department, using emergency powers without any congressional authorization or review.
At the same time, of course, the Fed is the leading contender to take on the role of monitoring systemic risk as part of the administration's proposed regulatory reform. Before that can happen, though, it seems likely that Congress will want to rein in the Fed and establish better oversight of its actions.
By Darrell Delamaide
Is it time to stress-test the Federal Reserve?
Commentary: Congressional critics ramp up efforts to corral central bank
WASHINGTON (MarketWatch) -- While not quite in the same league as Tina Fey's take on Sarah Palin, Saturday Night Live's spoof on the banks' stress tests last Saturday was pretty funny.
Will Forte as Treasury Secretary Timothy Geithner explained that the stress test went from being a graded test, to a pass/fail, to a pass/pass-with-an-asterisk, to a pass/pass system, and then he congratulated all the banks for passing. Watch the video.
Time will tell how useful the stress tests were, but few serious economists or analysts believe the banking problem is solved.
In the meantime, there's a groundswell in Congress for closer scrutiny of the stress tester - the Federal Reserve itself. America's central bank is a curious public-private sector hybrid, largely free from any governmental oversight or control.
But as the steward of the nation's money, the Fed's actions in recent months to print hundreds of billions of dollars in new money seem to cry out for some sort of democratic review. Congress, after years of fawning over Fed Chairman Alan Greenspan as the maestro of monetary policy, has learned the hard way that, while trust is good, control is better.
So there is a bill before Congress that calls for a full-scale audit of the Federal Reserve System -- the Federal Reserve Board based in Washington, and the 12 regional Federal Reserve Banks.
That bill, H.R. 1207, now has 149 cosponsors and counting. It was introduced by Texas Rep. Ron Paul, now nominally a Republican, but a former leader of the Libertarian Party who is still best known for his strong libertarian principles. Read more about the bill.
Paul, as his fans well know, would just as soon abolish the Fed as look at it, but this issue gives him a chance to come in from the political fringe and at least start a process the could result in changing accountability at the Fed.
Paul's bill directs the Government Accountability Office to audit the Federal Reserve Board and regional banks by the end of 2010 and present a detailed report to Congress. The audit would look at the Fed's actions during the crisis and its decision-making process.
The 149 cosponsors include all but three of the 29 Republican members of the House Financial Services Committee, starting with ranking member Spencer Bachus of Alabama. While the bulk of the bill's supporters are Republicans, 20 House Democrats have also signed on as cosponsors. The companion bill in the Senate, S. 604, introduced by independent Bernie Sanders of Vermont, has no cosponsors yet.
House Financial Services Chairman Barney Frank, D-Mass., has promised that the bill will get a hearing in his committee. "I hope we're going to put some limitations on this power of the Federal Reserve to lend any money to anybody," Frank recently told an audience in Boston, "and to significantly increase the auditing and transparency at the Federal Reserve."
Paul made it clear what he was after when he introduced the bill. "The Treasury gets hundreds of billions, which is huge, of course," Paul said in a speech on the floor, "and then we neglect to talk about the Federal Reserve, where they are creating money out of thin air, and supporting all their friends and taking care of certain banks and certain corporations. This, to me, has to be addressed."
Paul has some support outside Congress as well. No less an authority than former Fed Chairman Paul Volcker thinks the Federal Reserve will come in for some congressional review after its emergency actions during the crisis.
"I think for better or for worse we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed," Volcker said last month in a speech at Vanderbilt University.
Volcker said that the political system could not "tolerate" the degree of activity that the Fed has undertaken in conjunction with the Treasury Department, using emergency powers without any congressional authorization or review.
At the same time, of course, the Fed is the leading contender to take on the role of monitoring systemic risk as part of the administration's proposed regulatory reform. Before that can happen, though, it seems likely that Congress will want to rein in the Fed and establish better oversight of its actions.
By Darrell Delamaide