Summary of Sanders' Fed Transparency Amendment
July 15, 2010
Sanders' Fed transparancy amendment, which is included in the Restoring American Financial Stability Act of 2010 (bill summary here) which has passed both chambers of Congress and been sent to the president, does two things:
First, it requires the Federal Reserve to put on its website by December 1, 2010, the names of all of the financial institutions, corporations, and foreign central banks that received trillions of dollars in taxpayer assistance from the Federal Reserve since the beginning of the recession.
Second, it requires the Government Accountability Office (GAO) to conduct a top to bottom audit of all of the emergency actions the Federal Reserve has taken since the beginning of the financial crisis with a particular focus on all of the potential conflicts of interest surrounding these secret deals.
Since the beginning of the financial crisis, the Federal Reserve has provided over $2 trillion in zero or near zero interest loans -- backed by American taxpayers -- to the largest financial institutions in this country -- financial institutions that the Fed has deemed "too big to fail".
On March 3, 2009, Sen. Sanders asked Ben Bernanke, the Chairman of the Federal Reserve at a Budget Committee hearing a simple question:
Will you tell the American people who received these taxpayer dollars and will you tell the American people what the exact terms of this unprecedented financial assistance was?
Chairman Bernanke said no, he would not. He refused to answer this basic question. On that very same day, Sen. Sanders introduced legislation requiring the Fed to put this information on its website, just like Congress required the Treasury Department to do with respect to the $700 billion TARP program. And here we are now.
This money does not belong to the Federal Reserve, it belongs to the American people and the American people have a right to know where trillions of their taxpayer dollars are going. By passing this amendment, we will give the American people this information.
Two federal courts have already ordered the Federal Reserve to release this information as a result of a Freedom of Information Act request filed by Bloomberg News.
The Fed unsuccessfully argued in court that it should not have to release this information citing, according to Reuters, "an exemption that it said lets federal agencies keep secret various trade secrets and commercial or financial information."
Hear is what a unanimous three judge appeals court panel wrote last March in their opinion: "to give the [Fed] power to deny disclosure because it thinks it best to do so would undermine the basic policy that disclosure, not secrecy, is the dominant objective of. If the Board believes such an exemption would better serve the national interest it should ask Congress to amend the statute."
This appeals court decision upheld an earlier ruling by the Southern Federal District Court of New York that also ordered the Fed to release this information.
But, instead of releasing this information to the American people, the Fed has chosen to appeal this decision to the Supreme Court.
Not only would this amendment require the Fed to disclose these details on its website, this amendment also requires the GAO to complete a comprehensive audit of every single emergency action the Federal Reserve has undertaken since the start of the financial crisis.
Importantly, as a part of this audit, the GAO will be required to investigate whether there were conflicts of interest with respect to all of the Federal Reserve's emergency actions taken since December 1, 2007.
The American people have to play by the rules. What are the rules governing the Fed, who makes these rules or are they just made up as they go along? That's what this amendment seeks to answer.
Here are just a few of the questions that the GAO audit should help to answer:
Why was Lloyd Blankfein, the CEO of Goldman Sachs invited to the New York Federal Reserve to meet with federal officials in September of 2008 to determine whether AIG would be bailed out or allowed to go bankrupt? When the Fed and Treasury decided to bailout AIG to the tune of $182 billion, why did the Fed refuse to tell the American people where that money was going? Why did the Fed argue that this information needed to be kept secret as "a matter of national security"? When AIG finally released the names of the counterparties receiving this assistance, why did Goldman Sachs receive $13 billion of this money -- 100 cents on the dollar on everything AIG owed them? Did Goldman Sachs use this money to provide $16 billion in bonuses the next year? A GAO audit of the Fed might help explain to the American people if there were any conflicts of interest surrounding this deal. Who got what when, on what basis, on what terms, who attended the meetings, who made the decisions and were there conflicts of interest? That's what this amendment is all about.
In 2008, was there a conflict of interest at the Federal Reserve Bank of New York when Stephen Friedman -- the head of the New York Fed -- who also served on the Board of Directors of Goldman Sachs -- approved Goldman's application to become a bank holding company giving it access to cheap loans from the Federal Reserve? Here is an article published on May 9, 2009 in the Wall Street Journal that says:
"Goldman Sachs received speedy approval to become a bank holding company in September of 2008 … During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy. The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value. Mr. Friedman, who once ran Goldman, says none of these events involved any conflicts."
As a result of the bailout of Bear Stearns and AIG, the Fed now owns credit default swaps betting that California, Nevada, and Florida will default on their debt, so the Federal Reserve stands to make money if California, Nevada and Florida go bankrupt. This may make sense to the Federal Reserve. It does not make sense to me. The American people deserve at the very least to know the facts. A GAO audit can help provide them.
It has been reported that the Federal Reserve pressured Bank of America into acquiring Merrill Lynch -- making this financial institution even bigger and riskier -- allegedly threatening to fire its CEO if Bank of America backed out of this merger. When the merger went through Merrill Lynch's employees received $3.7 billion in bonuses. Was this a good or bad deal for the American taxpayer? A GAO audit can help us find out. Who got what when, on what basis, on what terms, who attended the meetings, who made the decisions and were there conflicts of interest? That's what this amendment is all about.
When the Federal Reserve provided a $29 billion loan to JP Morgan Chase to acquire Bear Stearns, the CEO of JP Morgan Chase (Jamie Dimon) served on the Board of Directors at the New York Federal Reserve. Did this represent a conflict of interest? A GAO audit can help explain this to the American people.
Currently, some 35 members of the Federal Reserve's Board of Directors are executives at private financial institutions which have received nearly $120 billion in TARP funds, but we don’t know how much these big banks received from the Fed. A GAO audit could answer this question. Which of these institutions got what when, on what basis, on what terms, who attended the meetings, who made the decisions and were there conflicts of interest? That's what this amendment is all about.
If the goal of the trillions in Fed loans to large financial institutions was to get credit flowing to small businesses that were cash-starved, why has small business lending been in freefall? How much of those zero interest or near-zero interest loans financial institutions received from the Fed were simply invested in federal government bonds earning an interest rate of 3-4 percent - a total give-away to the largest banks?
Too many American lives have been ruined by the greed, recklessness and illegal behavior by Wall Street. While the Fed was providing secret loans at virtually no interest to some of the largest financial institutions in this country, millions of Americans were losing their jobs, homes, life savings, and ability to send their kids to college as a direct result of the same Wall Street firms that the Fed was propping up.
The American people have a right to know why. When the American people need emergency loans to keep their heads above water they can't go to the Federal Reserve. They can't get zero interest loans. They can't put down as collateral toxic assets that nobody wants.
The least we can do for the American people is to tell them who got bailed out by the Fed. Why did they get bailed out? Were there any conflicts of interest involved with these loans? Were they doing this to enrich some of their friends on Wall Street? Were they providing these loans to enrich themselves?
If there is anything that this financial crisis has taught us it is this: we have got to make the financial system more transparent. That includes the Federal Reserve.
The bottom line is this: there is 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.