Fed Secrecy and Banker Bonuses

Stepping up a campaign for Federal Reserve accountability, Sen. Bernie Sanders on Wednesday questioned whether some of more than $2.2 trillion in secret subsidies went to Goldman Sachs and other bailed-out banks now planning to shower executives with huge bonuses.  Sanders voiced his concern in a letter to Fed Chairman Ben Bernanke and Treasury Secretary Timothy F. Geithner and during remarks at an Economic Policy Institute conference.  Goldman Sachs yesterday reported that its profits surged on second-quarter income of $3.44 billion.  The turnaround came less than a year after reckless investments by Goldman and other Wall Street firms triggered a worldwide recession and drove many rivals out of business.

With the good times rolling again on Wall Street, Goldman repaid its $10 billion taxpayer bailout and now plans to dole out the biggest bonuses in its 140-year history. The investment bank reportedly plans to pay as much as $20 billion this year in bonuses and other compensation, about $700,000 per employee. Goldman is one of 10 big banks that announced plans to return bailout funds so they could evade restrictions on executive compensation and bonuses.

“The question I have is how do we know that right after Goldman and other banks pay back billions to the Treasury, the Federal Reserve doesn’t turn around and provide them with billions more with no strings attached?” Sanders asked. “The answer is that we don’t know. Ben Bernanke refuses to say.”    

In a keynote speech at an Economic Policy Institute conference, Sanders argued that any firm that received a taxpayer bailout through the Troubled Asset Relief Program or the Federal Reserve should be subject to strict limits on compensation and should not be rewarding bonuses to senior executives.

The Senate in April approved 59 to 39 an amendment by Sanders calling on the Fed to disclose the names of all of the institutions that received more than $2.2 trillion in taxpayer assistance, how much each received and what they are doing with this money.  The amendment was included in the final version of the Budget Resolution. 

Sanders also is the chief sponsor of legislation to require the Fed to name the financial institutions that have received what could total more than $7 trillion in loans and loan guarantees. A separate Sanders bill would require the Government Accountability Office to conduct a comprehensive and independent audit of the Federal Reserve. It now has 13 cosponsors, including Sens. Russ Feingold (D-Wis.), John McCain (R-Ariz), Blance Lincoln (D-Ark.) and John Barrasso (R-Wy.).   Rep. Ron Paul (R-Texas) has introduced an identical bill in the House. It now has 261 cosponsors, including 85 Democrats. 
“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,” Sanders said. “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.”