You are here
Lawmakers attack Fed for being too secretive
They don't yet know the half of it.
* * *
By Maya Jackson Randall
Dow Jones Newswires
via CNN Money
Thursday, June 25, 2009
WASHINGTON -- U.S. lawmakers, during a hearing Thursday on the central bank's role in Bank of America's acquisition of Merrill Lynch, attacked the Federal Reserve as a secret agency unworthy of new enhanced regulatory powers.
"It's time to yank the shroud off the Fed and shine some light on these events," said U.S. House Committee on Oversight and Government Reform Chairman Edolphus Towns, D-N.Y., who in an opening statement repeatedly described the Fed as being "shrouded in secrecy."
"I believe that before Congress acts on the president's financial services reform proposal, we need to have a thorough understanding of what caused the current financial crisis and how the federal government responded."
The heated congressional hearing got under way Thursday with Federal Reserve Chairman Ben Bernanke defending the central bank's role in negotiations with Bank of America and with members of the House Government Reform committee expressing skepticism of the Fed's decisions.
Usually, the Fed chief goes to Capitol Hill to take questions on monetary policy and the economy. But the economy was barely touched on at Thursday's hearing.
Instead, lawmakers criticized the Fed as an agency that has too much power and yet too little transparency and questioned whether the Fed should become the uber regulator of the financial system envisioned by the Obama administration.
Bernanke, in his first congressional appearance since the administration rolled out its controversial regulatory-revamp proposal, defended the planned overhaul of U.S. financial rules. It's clear something has to be done to prevent firms from growing so big that they pose a risk to the financial system, Bernanke said.
"'Too big to fail' is not a policy. It's a major problem," he said. "I hope the system will be changed."
Lawmakers are reluctant to boost the Fed's powers. Even though it could help prevent companies from becoming too big to fail, critics have argued that the central bank didn't do enough before the crisis began to protect consumers and discourage firms from taking on riskier strategies that led to the credit crunch.
Bernanke, however, said the administration's plan for overhauling U.S. financial rules won't greatly boost the central bank's authorities.
"It's not a massive increase in powers," Bernanke told the House panel.
At the same time, Bernanke said Congress should consider various options for preventing the too-big-to-fail problem. One solution is to boost regulation. Another option is to break up large firms so that they no longer have the potential to damage the economy.
"I think it's legitimate to discuss both options," Bernanke said. "I would just point out that very large banks do have an economic function, a global reach, diversity of activities. But Congress may wish to look at different options. I don't want to prejudge what you will be deliberating."
Still, Bernanke warned lawmakers against moving forward on legislation that would give the Government Accountability Office, Congress' investigative arm, new authority to audit the Fed. More than half of the U.S. House has signed on a measure that would make way for audits of the Fed.
"My concern about the legislation is that the GAO is auditing not only the operational aspects of our programs and details of the programs but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar, and our national economic situation," he said.
Furthermore, Bernanke argued that the Fed, under his leadership, has made "enormous strides" to expand the information it releases to the public.
"We think we are quite transparent," Bernanke said.
Lawmakers, meanwhile, remain skeptical. Rep. Dennis Kucinich, D-Ohio, argued that the Fed's decisions in the Bank of America-Merrill merger make the case "for a significant increase in accountability at the Fed."
"We can't afford to make the Fed a super-regulator, as some have proposed, without also increasing its transparency in meaningful ways," said Kucinich.
* * *
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
|Previous Article||Next Article|
|Monetary historian Vieira plans reprinting ...||China's central bank repeats call for new w...|