As President Stands to Grant More Powers, Fed Faces Numerous Attacks

The Obama administration is expected Wednesday to unveil a proposal granting greater powers to the Federal Reserve, just as lawmakers are calling into question some of the Fed’s actions surrounding the current financial crisis.

A bill currently before the U.S. House of Representatives which would open up the Federal Reserve to Congressional audits has 232 co-sponsors as well as some bipartisan support. The bill, H.R. 1207, is sponsored by Rep. Ron Paul (R-Texas)

The legislation would give the Government Accountability Office (GAO) authority to examine the Fed’s books and report to Congress on the financial performance of the institution. Because the bill is now officially co-sponsored by a majority of the House, it will be debated on the Floor, per parliamentary procedural rules, though no date for such action is immediately known.

“The tremendous grass-roots and bipartisan support in Congress for H.R. 1207 is an indicator of how mainstream America is fed up with Fed secrecy,” Paul said in a media advisory. “I look forward to this issue receiving greater public exposure.”

“Detractors have argued that the Fed must remain immune from the political process, and that more Congressional oversight would distort their very important decisions,” Paul recently wrote in an editorial. “On the contrary, the Federal Reserve is already heavily entrenched in the political process, as the Fed chairman is a political appointee. High-level officials routinely make the rounds between positions at the Fed, member banks, Treasury and back again, taking care of friends and each other along the way.”

Rep. Dennis Kucinich (D-Ohio), along with Rep. Edolphus Towns (D-N.Y.), also announced recently that the House Financial Services Committee will subpoena the Federal Reserve to ascertain the details of the Fed’s agreements with Bank of America in that institution’s acquisition of Merrill Lynch.

Bank of America Corp. Chief Executive Kenneth Lewis told lawmakers last week that government officials at the Fed pressed him to buy Merrill Lynch & Co. even after he became aware of major losses at the investment bank.

Kucinich last week also provided some symbolism to Paul’s H.R. 1207 when he became the 218th co-sponsor, moving the bill to a mandatory debate with a majority of the House’s 435 members signed on. Kucinich is generally thought to be one of the more liberal members of Congress, Paul one of its more conservative members.

“There are a number of interesting things going on,” said Dan North, chief economist at Euler Hermes ACI, a trade credit insurance firm. “There’s an attack on Fed independence following the crisis. It’s always the same classic reaction: something’s gone wrong, then they want some oversight. They’re asking for more transparency for the Federal Reserve at the same time that the Administration is looking for wider powers.”

When so many people have been hurt financially, legislators want to look for a scapegoat, and right now it’s the Fed, North noted. “They want to do something to fix [the economic situation]. Attacking the Federal Reserve makes a lot of people happy. It makes constituents happy.”

Paul’s measure is unnecessary, North added, because the details of the Fed’s actions are already more transparent than ever.

“It’s important to have an independent central bank so they can direct monetary policy rather than have politicians twist their arm one way or another,” North said. “This never would have come up if the Fed’s balance sheet hadn’t expanded by four or five times.”