Economics

Senate Approves Auditing the Fed–At Least Once

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With zero "no" votes, the Senate today approved a very mild version of the "audit the Fed" proposal, one that deviates from the version pushed by libertarian Republican Rep. Ron Paul and passed by the House. Details from the New York Times:

The Senate on Tuesday voted unanimously to require a one-time audit of the Federal Reserve's emergency actions during and after the 2008 financial crisis as part of broad legislation overhauling the nation's financial regulatory system…

The amendment, proposed by Senator Bernard Sanders, independent of Vermont…would require the Government Accountability Office to scrutinize some $2 trillion in emergency lending that the Fed provided to the nation's biggest banks. The vote was 96 to 0….

Mr. Sanders, a professed socialist, has long demanded greater transparency at the central bank, and his original plan could have subjected the Fed to continuing audits of some routine operations. But he agreed to scale back the proposal in the face of opposition by the White House, the Fed, the Treasury and some Senate colleagues.

The critics said that more aggressive audits would impede the Fed's independence and potentially interfere with its ability to set monetary policy….

While the Senate provision would require an audit of the Fed's emergency operations beginning on Dec. 1, 2007, the House approved an even tougher audit requirement in its version of the financial regulatory legislation.

Senator David Vitter, Republican of Louisiana, put forward an amendment that would have mirrored the tougher House language, but it was rejected. The vote was 37 to 62….

The House bill, which was approved in December, included a proposal sponsored by one of the most conservative lawmakers, Representative Ron Paul, Republican of Texas, and one of the most liberal, Representative Alan Grayson, Democrat of Florida.

The Paul-Grayson proposal would allow audits by the Government Accountability Office of every item on the Fed's balance sheet, including all credit facilities and all securities purchase programs, but would allow an exemption for unreleased transcripts and minutes of closed-door meetings. It also would establish a 180-day time lag before details of the Fed's market actions could be released.

Ron Paul's attitude toward the milder Sanders version of the Fed audit. My November 2009 Reason magazine feature on the audit-the-Fed movement.