Date: May 19, 2009
Connell McShane: This bill has worked its way through Congress. It’s kind of interesting that there is a kind of a growing movement, you might call it, which was started or spearheaded by Congressman Ron Paul to audit the Fed. You hear the Federal Reserve talk all about transparency, but now how about a transparent Fed?
Well anyway, Darrell Delamaide is a columnist at Market Watch, joins us now from DC to explain a little bit more about what is going on here. Darrel, what is happening with this Ron Paul sponsored bill?
Darrell Delamaide: Well, it seems to be gaining a lot of support. When I wrote the column last week it had a 149 co-sponsors and today it’s gone up to 165, which is almost like a pre-vote given the wide support that is has; and it’s bipartisan. While most of the co-sponsors are Republican there’s a good 20-25 Democrats who’ve also joined in and in general it seems to reflect a feeling in Congress that there has to be more accountability at the Fed given the role that it’s played in this particular crisis.
Connell McShane: So what exactly is it that they want to do, I guess would be one of the questions I’d have, and one of our viewers actually brought up the point, “Okay, this sounds good, we should have more transparency. But what are the metrics that are going to be used to actually accomplish that goal?”
Darrell Delamaide: Well, I think they just want to find out what exactly the Fed has done. There are reports that in addition to a 2 trillion dollar balance sheet, the Fed doubled its balance sheet in connection with the crisis. That there is another 7 trillion dollars out there off balance sheet that nobody really knows about. So Congress wants to find out how much money the Fed has deployed in this crisis, in what forms, and also how it arrived at the decisions it made. Some of the decisions seem obvious and good, like injecting liquidity into the banking system. But other decisions, like bailing out AIG and bailing out AIG’s counterparties at 100 cents on the dollar are more questionable. And what Congress wants to know is how were these decisions arrived at? What were the motivations? What were the reasons?
Jenna Lee: Alright, Darrell, okay, walk me through this. Let’s just even simplify this further. Will my taxpayer money be used to then do some sort of audit of the government who is already using my taxpayer money to try and save the economy?
Darrell Delamaide: Well, the Fed’s money is not strictly speaking taxpayer’s money. It’s just money that’s just fabricated because…
Jenna Lee: Sure. I want to get a clear idea of the food chain here and the resources. So are there resources that… I mean someone has to be behind these audits. It’s time, its money, it’s looking into whatever they’re going to look into. We don’t even know how they would really do it, right?
Connell McShane: Well, who would do it, right?
Jenna Lee: It will cost something.
Darrell Delamaide: Well, the Government Accountability Office will be the ones doing it. That’s a Congressional institution that reports to Congress. They have a staff of auditors that conducts this kind of audit. So they would be the ones commissioned to do it. They would have to finish it by the end of 2010. So we’re not talking about even anything like the stress tests which were done in a matter of weeks. We’re talking about an extensive, long-term audit that will be done thoroughly. And then we’re supposed to prepare a…
Jenna Lee: Are you going to bring in brokerage firms in this as consultants in this? I’m just wondering.
Darrell Delamaide: I don’t think that’s the plan. You know, the GAO is actually set up to conduct audits. The problem with the Fed is that by law it cannot be audited by the GAO or by anybody outside of the Fed. So what this law intends to do is to change that exemption for the Fed. You know, any other government agency can be audited, is routinely audited. Whether it’s the SEC, the GAO has audited it. So, it’s bringing the Fed under the same accountability that other government agencies have.
Connell McShane: You know, this is Washington so somebody has got to be vehemently opposed to it, right? What’s the argument against doing this? Money? Just spending resources on it?
Darrell Delamaide: I have not heard the arguments against it, specifically with regard to this bill so much. In general, the feeling is that in order to fulfill its mission of conducting monetary policy, the Fed should be free from political control. So, opponents would say obviously this is a stalking horse. This is a beginning of more political control over the Central Bank.
So you have to, as always, balance the two things. To what extent in a democracy do you need to have control over it? But even Paul Volcker, a former Fed Chairman, has said that he doesn’t think that a democracy can tolerate, and that’s his word “tolerate”, the type of power the Fed has exercised without some sort of review.
Connell McShane: Interesting, alright Darrel, thanks a lot Darrell Delamaide from Market Watch in Washington.
Connell McShane: One of the co-sponsors is Congressman Walter Jones, who is a Republican out of North Carolina, who joins us now on FoxBusiness.com live. Good to see you, Congressman. So you know, Darrell was telling us that this seems to be getting lot of support. How are things going with this bill?
Walter Jones: It’s going very well. As Darrel said there are 165 co-sponsors. Ron Paul is one of my best friends in Congress, and I’ve been sitting on the floor with him when we have had votes on other issues and it’s been amazing to see colleagues come up to Ron and say, “I want to get on your bill 1207, the Transparency Act for the Federal Reserve System”. And I really think that we’re going to get enough votes so that we can have what’s called a discharge petition. If you get 218 co-sponsors on a petition at the desk in the house, you can actually bring a bill out of the committee.
But it’s my hope that Barney Frank will see that the House of Representatives as well as the American people, which is more important… they want to know how in the world is the Federal Reserve System operating without any oversight at all. And all Ron’s bill does, and that’s what Darrel said, is we’re just trying to say to the Federal Reserve, “You must permit an audit from time to time. You must be in a position when Congress calls you up to ask about monetary policies that you must come and make an appearance before Congress.” They don’t even do that now. We have no oversight over the Federal Reserve System at all. And again, I don’t think it should be at a point where the Federal Reserve feels that they have to curtail to Congress, but don’t we, the American people, have a right to know how they decide on some of these policies? They even have contracts with foreign governments, foreign banks and nobody knows what’s in the contract or the agreement.
Jenna Lee: Congressman, you make some great points there, but we’ve heard the argument that Federal Reserve has to come before Congress and answer some of these questions, we’ve seen some of that happening, which has been something that we watched very closely here on Fox Business. But, why now and why the Fed? Why is now the right time to do this? And if you’re… let me ask you this question first: Are you getting resistance from the Fed giving you information about what they are doing during this crisis? So they’re saying to you, “Congressman, no we are not giving you that information, we are not answering that question that you asked”?
Walter Jones: Well, if a committee tried to bring the Federal Reserve up for the purpose of explaining a certain issue that they’re involved in, it’s my understanding from my dear friend Ron Paul, that they can say, “No, we’re not coming”.
Jenna Lee: But have they said no? Is there an example of them saying, “No, we’re not giving you the answers to this question?”
Walter Jones: Well, I would ask you this, Janice: Look at how so much of this TARP money, how much of the billions and billions and billions of dollars… and I’m going to go a little bit off subject… but we can’t even get an accountability of how the billions of dollars of the tax payers money has been spent.
Jenna Lee: Sure.
Walter Jones: Well, the Federal Reserve has the authority to regulate and influence monetary policy, then I think they have an obligation because their decisions could negatively as well as positively impact on the economy.
Jenna Lee: Sure, that’s the TARP, that’s the treasury, the Fed isn’t acting there. But we don’t have any evidence right now of you saying that the Fed is keeping a black box on something that Congressman like yourself have asked them about what they’re doing. We don’t have anything that says they’re resisting that. I mean, have you gone to the Fed and have that happen?
Walter Jones: Well, I have joined Ron Paul, he’s taken the lead on the majority of this. But I’ll tell you this: when the GAO is prohibited from auditing the Federal Reserve System that in itself is enough to concern the American people.
Connell McShane: So the idea here is we don’t know what might be under that ‘black box’, but at least we should be able to ask the questions to find out. Right? That’s what you’re after, Congressman?
Walter Jones: That’s exactly what we’re trying to do. It’s a bipartisan bill with a 165 co-sponsors and we’re saying that the Federal Reserve does have a certain responsibility to allow the people to know how they make these decisions and how they influence the policies of this country.
Jenna Lee: One of our viewers wrote in and said, “Is this throwing good money after bad?” Is this the same kind of situation where you’re working hard at what seems like a very valid attempt to get some more transparency… maybe you should be working on creating jobs, maybe you should be working on helping the housing market. Is this really where you want to put your energy right now?
Walter Jones: Well, we’re doing that as well. Again, this is Ron Paul’s initiative and many of us have joined in because we think it is the right thing to do for the American people. We’re still doing many other issues facing Congress and we’re trying to do the best we can. But again, when you’ve got a monetary policy in this country.. we’ll I didn’t vote against the bailouts because all it was was Mr. Paulson and Mr. Bernanke taking care of their friends who were greedy and made bad decisions.
Connell McShane: But I guess the larger question becomes: Say you pass this, what’s the goal, what’s the end goal of this? And then why do we need to commit resources to something that’s essentially what Jenice is asking as well. What’s the end goal? What do you hope to accomplish?
Walter Jones: I think a democracy, if we are one, or a republic… whatever you like to call it…I don’t think we’d survive unless we have openness. And particularly when we have an entity such as the Federal Reserve that is so private that it can influence the monetary policies of this country in a negative way as well as a positive way, it needs to be exposed, it needs to have sunlight.
Jenna Lee: You know, Congressman one of the things that we see too, as being part of a business network, is when some of the Congress testimonies for example Federal Reserve chairman Ben Bernanke happen, it seemed like, quite frankly, a circus to not use a more appropriate term. It seems like sometimes a waste of time. So, how would you be able to use the information from this in an effective way? Because it seems like, again, no offense to your peers or to yourself, but there needs to be a real education by politicians on the working of the business world before you can have the government audit a big part of it.
Walter Jones: Well, again, I don’t want to say, whether it be a member of Congress or the taxpayer, anytime that you bring openness, anytime that you bring education and how can you explain how the Federal Reserve System works unless people have the opportunity to question, and they question on behalf of the taxpayers of this country.
Jenna Lee: How does the Federal Reserve work? How would you describe it?
Walter Jones: Well, the Federal Reserve, in my humble opinion, is an entity that was created in 1913 by Woodrow Wilson and that in itself, anything that was created in 1913, a hundred years later ought to be reviewed to see if it’s outlived its need.
Connell McShane: What do you think about the job Bernanke is doing? I mean personally, how would you rate his performance up to this point?
Walter Jones: I’d give him probably a C+, B-.
Connell McShane: So what’s the negatives?
Walter Jones: Well, the negative, in my humble opinion, is, how in the world, and I heard this on your show a little bit earlier, how in the world can this new administration and this government say to these banks who were almost coerced to take TARP money, “Now you can’t pay it back?” The whole thing up here is really in a chaotic situation.
Jenna Lee: Is that how it is, because that’s an interesting point. Because Congressman you’ve made lot of interesting points. Is that still how it feels there? We talk about anxiety in the marketplace and on Wall Street and how that can affect investors. Is there anxiety amongst your peers that you’re still not getting the answers to the questions you need?
Walter Jones: I think there is great concern that we need to have more openness and that’s again why Ron Paul has put the bill HR 1207 in, this transparency bill. I think that right now the American people and so many, many of us in Congress as well need to see the truth because I would tell you to the day that the lord calls me I would never believe that we should have bailed out Wall Street.
Jenna Lee: I think a lof of people agree with you on that.
Connell McShane: Alright, Congressman thanks very much for coming on. We appreciate it.
Walter Jones: Thank you.