The vote yesterday in the House Financial Services Committee to audit the Federal Reserve has touched off a round of wagon-circling among establishment media and the political class, trying to build a defense against the kind of policymaking that may affect the status quo gravy train.

The New York Times blamed the passage on “a display of populist anger”. Bloomberg gave Barney Frank the space to say that the measure “would be revisited” on the House floor, and everyone they interviewed other than Ron Paul for the story opposed the bill, saying it would undermine the independence of the Fed. Same for this Reuters article, where Frank again predicts changes before a floor vote.

In an editorial at the Washington Post, Alan Blinder forwards the same argument, that making the Fed more accountable to Congress would be dangerous. Dean Baker dispenses with that argument:

Blinder tells us that the vast majority of academic economists and people in the financial industry oppose efforts to make the Fed more accountable to Congress. (He also bizarrely asserts that “very, very few” people support more congressional control of the Fed. This would seem to be inconsistent with the support for the Paul-Grayson bill to audit the Fed.)

Blinder tells us why more congressional input into monetary policy would be a bad thing. He notes that the Fed will start to raise interest rates at some point when the economy starts to recover. He then presents the hypothetical scenario: “Would we like to see the FOMC members called on the congressional carpet to explain why they are ‘killing jobs’?”

Very good question. Just about everyone I know would say “yes.” As phone records for Treasury Secretary Timothy Geithner from his days as president of the New York Fed show, Fed officials are in constant contact with top figures in the financial industry. There is no doubt that they would loudly hear the complaints from the industry if they were not raising interest rates fast enough to meet the industry’s concerns about inflation.

Even more bizarrely, David Brooks, who has been assiduously courted by the White House throughout this Administration’s tenure, pops up with an op-ed today defending Timothy Geithner and saying that he did the right things in stabilizing the financial system. “In retrospect, (the Administration’s) performance during this trial was impressive.”

I think we can see what’s going on here. The establishment media is covering for a system of propping up banks and rescuing Wall Street without a concurrent plan to help people struggling with double-digit unemployment. They decry “populism” as a nasty way for the lower orders to have a say in the debate. They even call it, as Judd Gregg did today, “pandering.”

In actuality, this isn’t true. The rumor is that the only reason “audit the Fed” passed is with the support of nervous freshman and sophomore Democrats who didn’t want to be beat up about it back home. There are over 300 co-sponsors of the bill; all of them are not freshman and sophomores. In fact, of the new co-sponsors of the bill, one is William Lacy Clay, a longtime Democrat who represents a heavily Democratic district. And there are dozens of other longtime Democrats joining him.

Geithner, who was asked to resign yesterday and pushed back strongly, contrasting the Administration’s record with that of the Bush years, has unquestionably aided Wall Street’s return to profitability much more quickly than should be expected. The AIG episode this week, showing that Geithner failed to use any leverage to force their counter-party banks to take a haircut on credit default swaps, reveals a sad trend of leniency toward Wall Street, leading to a sapping of public trust. The fact that Geithner is talking about deficit reduction with the leftover TARP money instead of job creating stimulus shows that he is far more concerned with creating bonuses than lifting the country out of what still feels like a deep recession, with unemployment on the rise.

The White House released this statement yesterday in the wake of calls for Geithner’s resignation:

Secretary Geithner has helped steer the American economy back from the brink, and is now leading the effort on financial reform.

All of that can be true, and still the very real anger in the streets would ensue. This continued bloodless language, the talk of macroeconomists, is deeply damaging to the Administration and to electoral prospects in 2010, and they don’t seem to understand that. All the establishment wagon-circling in the world won’t change it, either.

A postscript: I’m continuing to look into the strange outcome of that vote on financial reform yesterday, help up by the Congressional Black Caucus. The official line continues to be that the CBC blocked the final vote out of anger on the economy, and used the leverage available to them to do so. But the CBC were allies with the Administration, voting 8-2 to block the audit of the Fed, and the blocking of overall financial reform came shortly thereafter. It’s a pretty open secret that the CBC Foundation takes a lot of corporate money, and Mel Watt, whose competing bill on auditing the Fed would have gutted the bill, has a close relationship with the ABA (a lot of national banks are in his North Carolina district). So nothing solid yet, but it’s still suspicious.

…an aide to Barney Frank said today that the blocking of a final vote had “absolutetly, absolutetly, absolutely nothing to do” with the Paul-Grayson amendment.