Statement on Increasing Transparency at the Federal Reserve
July 15, 2009
Sen. Bernie Sanders gave the following remarks as the keynote address at a conference at the Economic Policy Institute.
As everyone knows, we are suffering through the worst economic and financial crisis since the Great Depression.
Millions of Americans have lost their jobs, their homes, their life savings, their ability to send their kids to college, and their sense of hope that one day their kids and grandkids will have a higher standard of living than they do.
The American people are angry and rightly so. They want answers. How did this financial crisis happen? Who is responsible? Why aren't senior executives from big banks being thrown in jail for their illegal activities, instead of being rewarded with huge bonuses and compensation packages, like the financial crisis they started never happened?
And, why are ordinary Americans forced to bail-out the largest financial institutions in this country, when the middle class is shrinking, poverty is increasing, and the gap between the rich and everyone else grows wider and wider?
What is especially galling about the financial mess that we are in is that up until late last year, the Bush Administration kept telling the American people over and over again that the economy was "robust," the economy was "resilient," the economy was "fundamentally strong," the economy was "strong and getting stronger," the economy was "vibrant," the economy was "fantastic," the economy was "exciting," the economy was "the envy of the world," and the one I will never forget is what former Treasury Secretary Hank Paulson told me at a Budget Committee hearing: the American economy is just "marvelous."
Day after day, month after month, year after year, we kept on hearing from the Bush Administration and the Federal Reserve about how strong the economy was and how healthy the banks were. The only thing that could make things better we were told was more tax breaks for millionaires and billionaires and fewer regulations on the banking sector and corporations in general.
Then, out of no-where, President Bush, Hank Paulson, and Ben Bernanke gave Congress an ultimatum: Immediately pass the largest taxpayer bail-out in the history of the world to those on Wall Street or credit markets will freeze and the economy will collapse.
We were told that the price tag for this bail-out would be $700 billion.
Now, I voted against the $700 billion Wall Street bail-out. I am proud of that vote. I thought it was an insult to ask middle class taxpayers who were not responsible for this crisis to bail-out big banks and their CEOs who made risky investments. I thought that the bail-out legislation did not effectively deal with foreclosures; it did not do anything to address the issue of too big to fail; it did not undo the deregulatory fervor that got us into the financial crisis; and it did not effectively deal with the issue of outrageously high executive compensation and bonuses, among many other things.
But, for all that the $700 billion Wall Street Bailout lacked, there was consensus in Congress on one issue: it would have been unacceptable to keep the names of who received this funding a secret.
As a result, anyone in the world with access to a computer can go on the Treasury Department's website and learn that so far, over 400 companies have received taxpayer assistance through this $700 billion bail-out. We know who received this assistance. We know how much they received. And, we know what the exact terms of this financing are.
But, what most people probably don't understand, is that the Federal Reserve, the most undemocratic institution in this country, owned not by the American people, but by its member banks, has committed over $2.2 trillion in taxpayer assistance to programs it created to deal with the financial crisis - without the approval of Congress and without one substantial debate on the floor of the Senate or on the floor of the House. And, according to the latest government figures, this taxpayer assistance from the Fed could grow to more than $7 trillion.
Now, that issue alone should be enough to send a cold chill down the spine of every hard-working American taxpayer in this country. But, that's not even the half of it. Did the Federal Reserve have the decency to tell the taxpayers of this country who is receiving this money?
Believe it or not, the answer to this question is a resounding no. The Federal Reserve, to this day, is telling the American people very little about what they are doing with more than $2.2 trillion in taxpayer dollars. That is an outrage and that is something that I and many other Members of Congress are trying to change.
In March, at a Budget Committee hearing, I asked Fed Chairman Bernanke if he would tell the American people who the Fed is loaning this money to.
Mr. Bernanke replied that the Fed has provided this assistance to "hundreds and hundreds of banks." I then asked him to name those institutions. To which he replied "No."
Doing so would "stigmatize" the banks that received this money.
In my view, that is an unacceptable response. Chairman Bernanke and the Federal Reserve have got to understand that this money does not belong to the Federal Reserve: it belongs to the American people.
In April, I introduced an amendment to the Budget Resolution with Senators Webb, Feingold and Bunning calling on the Fed to publish on its website the names of every financial institution that received assistance from the central bank, how much they received, and what the exact terms of that assistance are.
Senators Dodd and Shelby also offered an amendment to the Budget Resolution calling on the Fed to increase transparency, but it did not require the Fed to name any names.
Both of our amendments passed and were included in the Budget Resolution.
My amendment passed 59-39 and only 2 Senators voted against the Dodd-Shelby amendment.
Since the Budget Resolution is non-binding, these amendments do not have the force of law.
But, they are beginning to send the message to the Fed: stop keeping information about the trillions of dollars you have loaned to big banks a secret.
To date, the Fed has chosen to adhere to some of the principals of the Dodd-Shelby amendment, but they have chosen to completely ignore my amendment. So, I have introduced a bill with Senators Feingold and Lincoln that would require the Fed to publish all of this information on its website.
I have also introduced a bill that would simply require the GAO to conduct a comprehensive and independent audit of the Federal Reserve by the end of 2010. Congressman Ron Paul has introduced an identical bill in the House which now has 260 co-sponsors, including 84 Democrats.
And, Speaker Nancy Pelosi has said that Congress should ask the Fed to put this information "on the Internet like they've done with the recovery package and the budget."
So, this issue is beginning to pick up a lot of momentum.
If there is anything that this financial crisis has taught us it is that we have got to make the financial system more transparent. That includes the Federal Reserve.
The lack of transparency in credit default swaps led to the $182 billion taxpayer bailout of AIG; the collapse of Lehman Brothers and precipitated the worst financial crisis since the Great Depression.
As long as the Federal Reserve is allowed to keep the information on their loans secret, we will never know the true financial condition of the banking system. The lack of transparency at the Fed could lead to an even bigger crisis in the future.
But, there is another reason to require the Fed to become more transparent.
Last month, ten large banks announced that they would be paying back money they received from the TARP program, including Goldman Sachs, JP Morgan Chase, American Express, Capital One, and Morgan Stanley. It was reported that these institutions wanted to pay back their TARP funds so that they could evade restrictions on executive compensation and bonuses.
Question: How do we know that right after these banks paid back the billions in TARP funding to the Treasury Department, the Federal Reserve didn't turn around and provide them with billions more with no strings attached?
Why is this important?
It just turns out that after Goldman paid back its TARP funding, we found out that Goldman Sachs will be paying out the largest bonuses it has ever provided in its 140 year history. Remember, this is the same institution that rewarded its CEO Lloyd Blankfein with a $68 million bonus in 2007, the largest bonus ever given to a Wall Street CEO.
Today, I will be sending a letter to Fed Chairman Bernanke and Treasury Secretary Geithner to find out the following information:
1) How much financial assistance has the Federal Reserve provided to all of the financial institutions that have paid back TARP funding since the collapse of Bear Stearns?
2) How much has each of these institutions received in financial assistance from the Federal Reserve?
3) Have any of these big banks received financial assistance from the Federal Reserve since they paid back their TARP funding, and if so, how much?
4) What is the value of the outstanding loans these firms are responsible for paying back to the Federal Reserve?
If it is found that any of these institutions still owe the Federal Reserve money as a result of the financial crisis, I am asking Secretary Geithner and Chairman Bernanke to require these firms to adhere to strict limits on executive compensation.
In my view, any big bank that received a taxpayer bail-out whether through the TARP program or the Federal Reserve should be subject to strict limits on compensation and should not be rewarding bonuses to senior executives.
Bottom line: there is no way, no way, we can allow trillions of dollars of Federal Reserve funds to bail out and underwrite financial firms with absolutely no accountability, no transparency, and no honest reckoning with the American people.
During the worst financial crisis in our nation's history since the Great Depression - a crisis which has led to the largest taxpayer bail-out ever -- the very least we can do is explain to the American people what the Federal Reserve is doing with their hard-earned taxpayer dollars.
That is an issue that we have got to deal with.
Let me briefly go over a few more issues that I believe Congress has also got to address with respect to the financial crisis:
First, the federal government has a responsibility to protect consumers from unscrupulous, predatory, and deceitful lenders. We need a Financial Product Safety Commission with one simple mandate: consumer protection. The Federal Reserve has proven that it is more interested in protecting the interests of big banks than consumers.
Second, as I mentioned earlier, we need a serious investigation into the financial crisis. The American people have a right to know how this financial crisis happened, how we got here, and what we can do to make sure that it never happens again. And, we need to throw those individuals who caused this crisis in jail for their illegal behavior.
Third, we need a national usury law to cap credit card interest rates and fees. Big banks need to stop ripping-off the American people by charging outrageous interest rates and sky-high fees.
Fourth, if an institution is too big to fail, it is too big to exist. In an orderly fashion, we must begin to break-up big banks like Citigroup, Bank of America, and JP Morgan Chase; and insurance companies like AIG so that taxpayers don't have to bail them out if they fail.
And, finally, we have got to stop speculators on Wall Street from manipulating the price of gasoline, heating oil, and other commodities. Right now, there is mounting evidence that the recent run-up in oil and gas prices have little to do with the economic fundamentals of supply and demand, and have everything to do with excessive speculation by some of the same Wall Street firms that received the largest taxpayer bail-out in the history of the world.
As you and I know, reforming the Fed and Wall Street will not be easy.
Over the past decade, the banking and insurance industries spent over $5 billion on campaign contributions and lobbying activities; and they are spending even more today to prevent Congress from seriously reforming their industries.
Just two years ago, the financial sector employed nearly 3,000 separate lobbyists to influence federal policymaking. That's more than five lobbyists for each Member of Congress.
So, we have our work cut out for us. But, it is time that Congress stood up to these big financial interests and for the average American. That is what I will be fighting for.