House Passes Fed Transparency Bill; Obama Will Veto

Moments ago, the in a 241-185 vote, the House passed passed H.R. 3189, aka  Fed Oversight Reform and Modernization Act. The bill would make changes to how the Fed conducts monetary policy and regulatory activities and would direct the Fed to take a rules-based approach to interest rate decisions; require audits of more Fed functions such as monetary policy; and place restrictions on its emergency lending powers. In other words, everything that the banks that are direct and indirect stakeholders in the Fed would fight to the death to prevent.

The new House speaker promptly applauded the passage. From Paul Ryan:

Today, the House passed H.R. 3189, the Fed Oversight Reform and Modernization Act. The bill would require the Federal Reserve to explain publicly its monetary policy, specifically how it sets interests rates and the country’s money supply. In response, House Speaker Paul Ryan (R-WI) issued the following statement:


"If the Federal Reserve explained to the public how it made its decisions, the American people would have greater confidence in them. Families could better plan for the future, invest their money wisely, and create opportunity for all of us. I thank Chairman Hensarling and the Financial Services Committee for offering this commonsense legislation."

The victory, however, was very hollow: the White House has repeatedly said Obama’s advisers would recommend veto of H.R. 3189, "which seeks to make changes to Fed operations, including how the independent agency conducts monetary policy and regulatory activities."

The Fed is independent? Interesting: read the following excerpt from the left-leaning NYT and decide just how independent the Fed is:

... in 1965, President Lyndon B. Johnson, who wanted cheap credit to finance the Vietnam War and his Great Society, summoned Fed chairman William McChesney Martin to his Texas ranch. There, after asking other officials to leave the room, Johnson reportedly shoved Martin against the wall as he demanding that the Fed once again hold down interest rates. Martin caved, the Fed printed money, and inflation kept climbing until the early 1980s.

And then this, from Lady Bird Johnson, spoken to William McChesney Martin, on his arrival at the LBJ ranch": "I hope you have examined your conscience and you’re convinced you’re on the right track."

And that is just how "independent" the Fed has always been.

But back to the White House which knows that with Congress a joke since the crisis, its only branch of government is the money printer in the Marriner Eccles building: "Subjecting Fed’s “exercise of monetary policy authority to audits based on political whims of members of the Congress, of either party, threatens one of the central pillars of the nation’s financial system and economy,” White House budget office says in statement. 

Which brings us to a tangent: every time a standing Fed chairman (or woman) is criticized before Congress their traditional response is that it is Congress that gave the emergency powers it now has to bail out anyone and everyone. Especially Fed member banks.

So what happens when Congress tries to change the law? Well... this: