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Fed audit bitterly opposed by Treasury
By Ryan Grim
The Huffington Post, New York
Monday, March 8, 2010
The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday. Instead, the official said, the Treasury prefers a substitute offered by Rep. Mel Watt, D-N.C., and would like to see it enacted as part of the Senate bill.
The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO's ability to perform an audit.
Treasury Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger, and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing's ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.
HuffPost reporter Sam Stein lodged what he called a "formal complaint" against the ground rules. The complaint was noted and the briefing began.
Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson, D-Fla., and Ron Paul, R-Texas, a senior Treasury official said he is intensely opposed to it.
The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.
He said he supports full disclosure when it comes to the scale of Fed lending and wouldn't draw a bright line around auditing certain activities, but wants to make sure the Fed maintained its independence. A lack of independence, he said, could lead to inflation and otherwise undermine progressive priorities.
He said, however, that he would be supportive of efforts that would help the Fed earn back some of the credibility it has lost over the past few years.
HuffPost asked if central bank liquidity swaps -- foreign currency trades worth hundreds of billions of dollars -- should be subject to an audit. The official said that the identity of the countries that received dollars was made public as was the amount each got. It worked well and was good policy, he said, and opening it to audit could undermine its future effectiveness.
The purpose of the swaps, he said, was to make sure that foreign central banks had enough dollars to meet their obligations. The effort kept interest rates low, he said.
A member of Congress, told of the unnamed Treasury official's comment, asked not to be named and said that Geithner, a former Fed president, should recuse himself from Fed audit legislation discussions, given that the audit would cover his own actions during the crisis.
And Rep. Grayson said he finds Treasury's opposition to the audit troubling. "There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street," Grayson said. "And opposing a measure that passed overwhelmingly in the House with bipartisan support at the [Financial Services] committee level, based up on legislation that now has 317 cosponsors in the House, shows that the president may be getting bad advice."
The idea that the Fed's mission would be undermined by an audit, Grayson said, "is a scarecrow erected by people who want to cover up the actions of the Fed for their own purposes, including those who actually have worked at part of the Fed, to prevent accountability at any cost."
Geithner served as president of the New York Fed during the financial crisis.
"It's interesting that the Fed regards the simple fact that people find out what it does as somehow being unduly restrictive. We are a government of laws, not of men," Grayson said.
"It's certainly no surprise that banking insiders at Treasury don't want transparency at the Fed," said Jesse Benton, a spokesman for Rep. Paul. "They are wrapped up in the central bank shenanagins too, and do not want their wheelings and dealings out in the open any more than Alan Greenspan or Ben Bernanke."
Ryan Grim is senior congressional correspondent for The Huffington Post.
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