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As the political world reacts to the hold on Ben Bernanke’s nomination from Sen. Bernie Sanders and the left-right coalition supporting him, I contacted James Kenneth Galbraith, the economist and professor at the University of Texas-Austin, to ask him why he wants to see the Federal Reserve audited.
His answer was not that we would suddenly uncover some malfeasance on the part of the Fed in their lending practices. It’s much more elemental than that. “To me, the point is simply that the Federal Reserve has a responsibility to answer questions from members of Congress. All questions, without exception. It is not the Fed’s job to decide what they can withhold. They do not have the authority to withhold information from Congress.”
I don’t think people who haven’t tuned into this issue understand that is what’s at stake. There are several pieces of documentary evidence at hearings, where questioners simply ask where the Fed has lent out the trillions of dollars they’ve used in special lending programs, and Bernanke says haughtily, “I can’t tell you.” Here’s just one example from Bernie Sanders:
Bernanke just won’t say where $2.2 trillion dollars went. As Galbraith says, “This is a Constitutional issue, and to me, it’s very basic.” Congress has the authority to view the information and distribute it to the public as they see fit. Individual members would also be accountable if they abuses that privilege. But Congress has that authority. They created the Fed, the Fed didn’t create Congress.
Galbraith concluded, “The notion that the counterparties and terms of the Fed’s dealings with private banks should be confidential or proprietary in an extreme situation like the crisis, seems to me to be indefensible in every way.”
More on this issue later today.
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Bernanke has said in the past that making the names of the banks public that have been granted loans by the Fed would cause the public to lose faith in those banks. Since the Fed lends only to healthy banks (unlike the Treasury), this would tarnish the reputations of otherwise solid banks. I’m inclined to agree with him. Since the public mostly doesn’t understand the difference between “bailout” and “stimulus” I have no doubt that they wouldn’t understand the difference between the lending policies of the Fed and those of the Treasury.
But this concern should not preclude Bernanke’s making the names of those banks available to Congress. Congress is not the general public, and presumably they can understand both the Fed’s lending policies and the importance of not publicizing information that would cause an economic panic in bank customers. The Fed shouldn’t be allowed to have secrets from Congress, and Congress has not only the right but the duty to regulate the Fed.