Alan Grayson: It’s surprising to me that it has gotten essentially no mainstream media coverage at all because we’re talking about so much money.
William Greider: The Federal Reserve is the black hole in American democracy.
Ron Paul: All we have to say is, what do they have to hide?
Dennis Kucinich: The Federal Reserve had a responsibility to provide oversight for the conduct of banks. They didn’t do that.
Narrator: It’s known as the most powerful and secretive institutions in Washington and now, President Obama wants to hand the Federal Reserve even more power.
Barack Obama: I am proposing that the Federal Reserve be granted new authority and accountability for regulating bank holding companies and other large firms that pose a risk to the entire economy in the event of failure.
Narrator: The President’s plan to make the Fed the systemic risk regulator has raised eyebrows on Capitol Hill.
Darrell Issa: The President’s financial reform proposal has included broad and sweeping increases in Chairman Bernanke or his successor’s powers and if that power is used, what would be the oversight?
Paul Kanjorski: I believe that we have to adequately audit the Federal Reserve before any consideration is given to making the Federal Reserve the systemic risk regulator.
Narrator: A growing number in Congress are calling for the Federal Reserve to be fully audited for the first time in its history. It’s a movement that started with one Washington outsider whose ideas have largely been ignored by the mainstream of both political parties: Texas Congressman Ron Paul. He’s been trying to audit the Federal Reserve for years without success, but in the last few months, his bill to open up the Fed’s books has spawned a rare bipartisan coalition of more than 250 co-sponsors, a majority of the House of Representatives.
Ron Paul: The best answer I have about defending my bill is asking a question, why not?
Ben Bernanke: My concern about the legislation is that if the GAO is auditing not only the operational aspects of our programs and the details of the programs, but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar, and our national economic situation.
Narrator: Despite these dire warnings against having an audit, Fed challengers in Congress aren’t flinching.
Alan Grayson: This is a situation where the Federal Reserve is out of control. Since September, it has been doing things that it never did before in its history.
Narrator: With the help of a rule from the days of Woodrow Wilson that gave the Federal Reserve vast authority to lend money during “unusual and exigent circumstances,” the Fed has doled out more than a trillion dollars to financial institutions without consulting Congress. When freshman Congressman Alan Grayson asked the Fed’s Inspector General how much of that money the Federal Reserve had lost since the crisis began, he was surprised to find out she didn’t know.
Alan Grayson: So are you telling me that nobody at the Federal Reserve is keeping track on a regular basis of the losses that it incurs on what is now a $2 trillion portfolio?
Elizabeth Coleman: Until we actually look at the program and have the information, we are not in a position to say whether there are losses or to respond in any other way…
Alan Grayson: And I think it was shocking to me and to other people to see that the Inspector General could not account for a trillion dollars of cash that had been handed out by the Federal Reserve in the course of just the past few months.
Narrator: So Grayson began rallying his fellow Democrats to support Ron Paul’s bill and call for more oversight of the Federal Reserve.
Nancy Pelosi: The fact is, is that the American people want to know more of the “secrets of the temple” as the book was before you were born. The Secrets of the Temple was required reading in my day.
William Greider: Nancy Pelosi said the public wants to know more about the secrets of the temple and my response to that is if the public does learn more, they will be outraged more.
Narrator: Journalist and author William Greider says the Fed’s darkest secrets are conflicts of interests stemming from its deep ties to the financial elite.
William Greider: The Federal Reserve, from its origins, is very, very close to the biggest banks and financial houses in the country. It always has been and always has governed with that in mind.
Narrator: The Fed has refused to release the names of all the banks that it has given money to, but some of the names that have leaked out have caused concern and stories emerged of how the banks got their money. Some are questioning the Fed’s close relationship with Wall Street.
William Greider: One example that I think is particularly dubious: Jamie Dimon, CEO of the JP Morgan Chase, is involved in the bailout of Bear Stearns. If that firm failed, one of the people who loses first is JP Morgan Chase, so he is also saved by the bailout of Bear Stearns. So he graciously agrees to take over Bear Stearns if the Federal Reserve will put up $30 billion to cover his losses.
What I find troubling is that Jamie Dimon sits at the Board of Directors of the New York Federal Reserve Bank. Tim Geithner who was then president of the New York Federal Reserve Bank and is now Treasury Secretary, was bargaining with his own board member on the terms of this deal, so I think what has happened in this crisis is that people all over the country have been able to see that there’s something illegitimate about this. They may not be able to put their finger on it, but this doesn’t feel right and some people are getting downright angry and that includes a lot of members of Congress.
Man in Congress: Do you solemnly swear to tell the truth, the whole…
Narrator: And now, one House committee is holding its own investigation into the controversial deal that the Fed brokered between Bank of America and the failing financial giant Merrill Lynch. According to documents acquired during the investigation, Fed Chairman Bernanke threatened to fire Bank of America’s CEO Ken Lewis when Lewis considered backing out of the deal.
Dennis Kucinich: The Fed’s decision-making process in the Bank of America and Merrill Lynch merger makes the case for a significant increase in accountability at the Fed.
Narrator: The next hurdle for the plan to audit the Fed is the House Financial Services Committee chaired by Barney Frank. Although Frank has praised the Fed’s work to keep credit flowing during the economic crisis, he has pledged to include a Fed audit in the major financial regulation bill he plans to finish this summer.
Barney Frank: There will be substantially increased auditing. We don’t want anything that would endanger the integrity of monetary policy, but in general, the operations of the Fed, the money they take in, all that would be very much subject to audit.
Narrator: Despite the momentum, the Fed is not quitting the fight. They just created a new position for Enron’s former head lobbyist Linda Robertson to push back against congressional critics.
Alan Grayson: I think it’s unfortunate that they’re struggling so hard to keep the secret. We need to know exactly who got the money, what the terms are, all the details of this, because this is democracy. We can’t hand out a trillion dollars of the people’s money and keep everyone in the dark about it. That’s ridiculous. Nobody has that kind of power in a democracy in a constitutional country.