In a stunning shun to Congressional lawmakers, WSJ reports that The Fed has failed to comply with a request that the bank-owned entity identify the individuals who leaked The FOMC Minutes to Medley Global Advisors a day before the official release in October 2012. Rep. Jeb Hensarling sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22. The deadline passed without any response by the Fed...
As a reminder, ProPublica explains the leak...
The Federal Reserve sprung a previously unreported leak in October 2012, when potentially market-moving information about highly confidential monetary deliberations made its way into a financial analyst's private newsletter.
The leak occurred the day before the scheduled public release of meeting minutes that shed new light on the Fed's decision to embark on a third round of bond buying to boost the economy, ProPublica has learned.
The newsletter containing the leaked material came from an economic policy intelligence firm called Medley Global Advisors whose clients include hedge funds, institutional investors and asset managers. On Oct. 3, 2012, Regina Schleiger, an analyst with the firm, sent clients a "special report" titled "Fed: December Bound."
The report focused on the Sept. 12-13 open market committee meeting, where the panel had approved what's called "QE3," a new program of large-scale purchases of mortgage-backed and Treasury securities.
Typically, the Fed chairman holds a news conference following the meetings to help explain the committee's actions. But when Bernanke did this on Sept. 13, he did not reveal the depth of disagreement within the committee about how effective the bond-buying program would be and whether it was worth the cost.
Schleiger wrote, however, that the minutes due out the next day would reveal "intense debate between Federal Open Market Committee participants."
Schleiger also revealed that the Fed would likely continue buying longer-term Treasury bonds beyond December. As part of a program dubbed Operation Twist, the Fed had been selling short-term Treasuries to buy longer-term ones.
Schleiger wrote that the committee would likely continue buying long-term bonds even after it sold all the shorter-term Treasuries. This information was not contained in the minutes and proved to be accurate.
Her newsletter also explained in uncommon detail both how Fed staff constructed the minutes and various policy options that were recommended and the thinking of the leadership – Bernanke and vice chairs Janet Yellen and Bill Dudley.
"It's not unusual for board staff to pull all-nighters working on the final draft of the policy recommendations, once these has [sic] been commented on," Schleiger wrote. "This one took until after midnight."
Which resulted in an internal probe ordered by Bernanke that inevitably found no wrongdoing.. and so Congress took up the matter.
But now, as The Wall Street Journal reports, The Fed has ignored that request...
The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations.
In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found a “few” Fed staffers had contact with Medley before the report, but did not identify them.
Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.
The deadline passed without any response by the Fed, a committee spokesman said Wednesday.
The Fed declined to comment. Medley did not respond to a request for comment.
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The bartender says: what can I get “the most transparent administration in history”?
If Janet Yellen didn’t resemble a bookwormish teetotaler, perhaps she’d join her colleagues in a toast to suppressing democratic accountability. For now, she’ll order a club soda while working vigorously to keep Congress, and thus the people, out of her business of running the country’s central bank.
Yellen has only been Chair of the Federal Reserve for one year, but she’s already facing pressure to open the books from the new Congress. Leading the charge are two statesmen from Kentucky: Representative Thomas Massie and Senator Rand Paul. Both have introduced audit the Fed legislation in their respective chambers.
Wall Street’s cadre of financial oligarchs are predictably up in arms over an audit of their free money machine. Think tankers are antagonizing the campaign, with Jim Pethokoukis of the American Enterprise Institute asserting that Sen. Paul has “a poor understanding of what’s actually on the Fed balance sheet and how the bank operates.” It’s expected President Obama would veto an audit the Fed bill. Even local bankers are scaremongering over the prospect of the Fed losing autonomy.
Yellen, for her part, isn’t about to let the nosy wolves in her henhouse. In a recent interview, she said she would stand “forcefully” against any audit measures. She justified her intransigence by citing the importance of “central bank independence” and being able to act without interference.
Nothing says limited government and separation of powers like a bureaucracy unaccountable to the voice of the people! Then again, Yellen doesn’t care much for democratic oversight. She’s a caricature of Randian libertarianism: someone who wants to do whatever, whenever, without rulers. The problem is Yellen isn’t operating a private railroad company. She’s the figurehead for a government institution created by Congress. If democracy means anything, it’s that voters have some measure of control over political bureaucracies.
So apologies Janet, you don’t operate in a bubble (insert Fed pun here). The people - those plain people who think economics is about supply and demand rather than complicated math formulas - deserve some level of sway over the Fed’s operations. So why not an audit by the Government Accountability Office? Last I heard, President Obama was all about accountability.
Yellen and company aren’t buying it. They don’t want anyone butting in on their micromanagement of the money supply. Outside observers would interfere with the Fed’s independence, which is a sacrament of the central bank.
In an illuminating interview with the Wall Street Journal, David Wessel does his best to explain the history of the Federal Reserve and Congress’s long trek to make its internal deliberations more public. For over four decades, the GAO (then called the General Accountability Office) was barred from investigating the Fed. That changed in 1978, when Congress passed a law allowing the GAO to look at the central bank’s “regulatory duties.”
Then the financial crisis of 2008 hit, and the Fed intervened in the financial markets at an unprecedented scale. Banks and Wall Street firms were bailed out to the tune of tens of trillions of dollars. Main Street was left high and dry. Voters were livid and rightfully so.
Congress - after ignominiously bailing out the banks further - expanded the GAO’s authority to examine Fed loans to private companies. With the passage of the Dodd-Frank bill in 2010, the Fed was further opened up, and had to disclose “internal controls, policies on collateral, use of contractors and other activities.” Currently, the GAO is not allowed to review the Fed’s discussions on monetary-policy decisions.
Rand Paul’s audit the Federal Reserve bill eliminates that barrier. And therein lies to the problem according to Fed apologists. As Mr. Wessel tells us, the central bank should be protected from the influence of short-sighted politicians. “[G]iving politicians power over interest rates and the supply of credit hurts an economy over time,” he explains. “Prohibiting the GAO—an arm of Congress–from second-guessing the Fed’s monetary policy decisions is part of that insulation.”
Now, it is indeed true that politicians tend to be myopic in their actions. An $18 trillion debt created by the refusal to don big boy pants and cut spending is indicative of Congress’s systematic immaturity. Having the likes of Nancy Pelosi and John Boehner in charge of the Fed’s printing presses is a startling notion. But that’s not what auditing the Fed accomplishes. There is no language in either the House bill or Senate bill that puts Congress in charge of monetary operations. Fed proponents like Pethokoukis are demagoguing when they say otherwise.
It’s true the Fed’s financial statements are audited every year by the firm Deloitte & Touche. That perfunctory measure didn’t reveal the fact that the Fed took advantage of the financial crisis to bail out foreign companies and central banks. Over $16 trillion was doled out to foreign institutions like Barclays and UBS. The American public only became aware of the monetary shenanigans because Dodd-Frank contained a partial audit of the Fed’s activities. Had that not happened, we would still be in the dark.
Central bank defenders who scream “independence” over the prospect of an audit are misguided. The idea that political institutions operate in a vacuum and are isolated from outside interests is college-level idealism. It doesn’t pass the smell test. Government officials are primarily interested in perpetuating their power - public good be damned.
Janet Yellen is just as beholden to everyday politics as President Obama. She’s not independent; her job depends on the president’s approval. In a recent testimony before Congress, Yellen wondered aloud, “I really wonder whether or not the Volcker-led Fed would have had the courage to take the hard decisions necessary to bring down inflation and get that finally under control.” What she referred to was the economic calamity that preceded the inauguration of President Ronald Reagan. When the Gipper took office, inflation was raging. Volcker was appointed to the Fed to clamp down on rising prices. This wasn’t popular at first; hiking interest rates tanked the economy. But Reagan stood by Volker, giving him the political cover to follow through. As Washington Post columnist Robert Samuelson writes,
“[D]uring Volcker’s monetary onslaught, there were many congressional proposals, backed by members of both parties, to curb the Fed’s power, lower interest rates or fire Volcker. If Reagan had endorsed any of them, the Fed would have had to retreat.”
Volcker didn’t operate independently. He had the support of the Reagan White House. Just the same, Yellen isn’t free from democratic pressure. She has to obey political headwinds.
If the Fed is not immune from politics, then why keep up the facade of independence? Let’s acknowledge the central bank must answer to the political class. And then let’s look at the past: the Fed’s history is full of backroom deals for elite special interests. That’s not an accident. Darkness gives cover to all sorts of sleazy deeds. An audit would begin the process of weeding out this secrecy.
If the Federal Reserve has nothing to hide, it has nothing to fear, right?
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Or perhaps this sums it up best... (when it comes to the untouchables)