Bernanke Wants To Eliminate Reserve Requirements

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theeconomiccollapseblog.com
Money Out Of Thin Air: Now Federal Reserve Chairman Ben Bernanke Wants To Eliminate Reserve Requirements Completely?
Up until now, the United States has operated under a "fractional reserve" banking system. Banks have always been required to keep a small fraction of the money deposited with them for a reserve, but were allowed to loan out the rest. But now it turns out that Federal Reserve Chairman Ben Bernanke wants to completely eliminate minimum reserve requirements, which he says "impose costs and distortions on the banking system". At least that is what a footnote to his testimony before the U.S. House of Representatives Committee on Financial Services on February 10th says. So is Bernanke actually proposing that banks should be allowed to have no reserves at all?

That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system? Not that we are operating with sound money now, but is the solution to have no restrictions at all? Of course not.

What in the world is Bernanke thinking?

But of course he is Time Magazine's "Person Of The Year", so shouldn't we all just shut up and trust his expertise?

Hardly.

The truth is that Bernanke is making a mess of the U.S. financial system.

Fortunately there are a few members of Congress that realize this. One of them is Republican Congressman Ron Paul from Texas. He has created a firestorm by introducing legislation that would subject the Federal Reserve to a comprehensive audit for the first time since it was created. Ron Paul understands that creating money out of thin air is only going to create massive problems. The following is an excerpt from Ron Paul's remarks to Federal Reserve Chairman Ben Bernanke at a recent Congressional hearing....

"The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, quadrupling it won’t work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile."

The truth is that the financial system that we have created makes inflation inevitable. The U.S. dollar has lost more than 95 percent of the value that it had when the Federal Reserve was created. During this decade the value of the dollar will decline a whole lot more.

That doesn't sound like a very good investment.

But that is what happens when you give bankers power to make money up out of thin air.

And things are only going to get worse.

Especially if Bernanke gets his way and reserve requirements are eliminated entirely.

The U.S. economy is a giant mess already, and we have got a guy at the controls who simply does not have a clue.

It's going to be a rough ride.

Congress Allowed To Use Inside Info To Invest in Stocks

wgrz.com
For a group often criticized for being out of touch with what's happening on Main Street, some argue Congress seems to be deeply in touch with what will soon happen on Wall Street, especially when compared to the average investor.

"If the question is -- are they using information that they're picking up in Congress to beat the market? The answer is absolutely," said Dr. Alan Ziobrowksi, a professor of economics at Georgia State University.

This may surprise you, but it's perfectly legal for both members of Congress and their staff to use inside knowledge about upcoming legislation to play the stock market.

For example, let's say Congress is quietly preparing to pass a bill that helps the dairy industry. Before the public is aware of Congress's intentions, our elected leaders and their staffer can invest in dairy companies that stand to benefit from the bill. Then, they can pass the bill and watch the stock take off. Critics call it a form of legalized insider trading.

For those of you wondering whether scenarios like that really happen, five years ago Dr. Ziobrowksi studied the stock market investments on United States Senators. He discovered they were beating the market averages by 12 percent a year.

ZIOBROWSKI: That's actually about twice as high as the abnormal profits made by insiders, corporate insiders -- which is an extraordinary amount of money.

REPORTER: Is there any way to explain how they made those profits other than the fact that they may have had advance knowledge of what would happen to those companies?

ZIOBROWSKI: Uh, no. Frankly... These guys are way outside the margin of accident.

Critics of Congressional investment practices point to a recent transaction made by Republican House Minority Leader John Boehner of Ohio. In September of 2008, when the economy was on the brink of collapse, the U.S. Treasury Secretary and Chairman of the Federal Reserve went to Capitol Hill to privately brief Boehner and other congressional leaders. At the time, one of the greatest economic dangers the country was deflation. One day after that meeting, records show Congressman Boehner pulled his money from a fund tied to inflation.

"It says to me he picked up some information and he tried to save himself a lot of money by dumping it as soon as he could," Dr. Ziobrowksi said. "And again, though, technically speaking, there is absolutely nothing illegal about that."

But if you're not a member of Congress, or not lucky enough to work for one, buying and selling stocks based on information not available to the public can be a crime. Just ask Martha Stewart, who went to prison for lying to investigators about that very topic.

Even corporate CEOs play by tougher rules than Congress. When a CEO or a company officer buys or sells stock in their company, of which they have inside information, they have to publicly disclose that transaction within two days. Members of Congress report their stock transactions once a year.

"Well, it's really a double standard between what we in the corporate world have to adhere to and what people in government have to adhere to," said Amherst-based investor Tony Ogorek of Ogorek Wealth Management.

There also are concerns about conflicts of interest. After all, members of Congress could be voting on bills that directly or indirectly affect the companies they're invested in.

"I think the worse danger of course is that they're going to be passing and lobbying legislation on the basis of what's good for their portfolio rather than what's good for you and I," Dr. Ziobrowski said.

For three years, U.S. Representative Louise Slaughter (D-Fairport, NY) has been trying to stop the practice.

"Well, the only reason it's legal is because it had never been declared illegal," Slaughter said.

In 2006, Slaughter introduced a bill known as The Stock Act, which would ban Congress and its members from using their inside knowledge of upcoming legislation to make money.

REPORTER: How big of a problem has this become?

SLAUGHTER: We don't know the real scope of it. We just knew that there was a point in time when it seemed to be pretty apparent.

According to Slaughter, when the market was soaring a few years ago, Congress discovered some of its staff members were using their government-owned computers to play the stock market during work.

"The first apparent piece of that came when there was some legislation about asbestos removal, and what we were going to do about it," Slaughter said. "And there was a senate bill that we were waiting for that sort of collapsed. The next morning, the stock on asbestos went through the roof, and there was no question that they had had some kind of prior notice that this was going to happen."

As powerful as Slaughter has become on Capitol Hill. Her cause has gained little momentum; however, she has found an ally in Senator Charles Schumer, who supports even tougher rules that would ban members of Congress from trading any stocks.

REPORTER: Why do you think this measure has not passed or gained any traction so far in Congress?

SCHUMER: I suppose there are Senators and Congressmen who would be affected by it and don't like being told they shouldn't do it. But you know what? You want to trade a lot of stocks? You want to own a lot of stocks? Don't be a Congressmen or Senator. No one is forcing you to run for office.

It's not uncommon for members of Congress, who are paid a base salary, to leave office a lot wealthier than when they arrived. We sifted through the financial disclosure forms for as many Western New York members of Congress - past and present - as we could find. Most did not directly own any company stock or had their money tied up in special funds whose investments they did not control.

We did, however, discover that former Buffalo Congressman John LaFalce, who rang the closing bell at the New York Stock Exchange before he retired in 2002, was heavily invested in the market while in office, even while he served as the ranking member of the House Financial Services Committee.

LaFalce declined an on-camera interview, but told 2 On Your Side, "I always stayed away from banking stocks and (any) stocks within the jurisdiction of my committee."

We found nothing to suggest LaFalce traded based on knowledge unavailable to the public. But in a body as big as Congress, with its massive staff, Slaughter is convinced that the practice of insider trading continues in Washington, D.C.

"We have no business doing that," Slaughter said. "What we're there for is writing legislation to benefit everybody in the United States of America. We are not there to make it possible for somebody to make any money what(so)ever on that information."

To some, it is a frightening prospect at a time when Congress has never had as much financial control over Wall Street, and perhaps inside knowledge of what will happen next in the market.

Slaughter said she is going to try to attach her bill banning Congressional insider trading to a bigger bill that regulates the credit card industry. She believes that could make it more difficult for her colleagues to vote against it.

Audit the Fed Amendment Passes 43-26!

By Tmartin

After several hours of heated debate, the Paul-Grayson “Audit the Fed” amendment passed 43-26 in the House Financial Services Committee earlier today. The amendment calls for a comprehensive audit of the Federal Reserve and replaces the opposing “placebo” amendment proposed by Mel Watt.

The Paul-Grayson initiative is an amendment to Barney Frank’s HR 3996, also known as the “Financial Stability Improvement Act of 2009″. The Committee was going to vote on that bill today, but Barney Frank surprisingly postponed the vote until after the Thanksgiving recess:

(Rep. Barney) Frank told the panel that most of the members pushing him to postpone the vote were members of the Congressional Black Caucus who said that the political environment wasn’t right for a vote this afternoon.

“It’s my understanding,” Frank said, “that the issues being addressed are not internal to this bill.” In other words, the Democrats were not expressing particular problems with the bill itself, but the larger problems in the economy made them reluctant to support a bill that could be portrayed as too friendly to Wall Street.

Ron Paul sent out the following press release shortly after the amendment passed:

FOR IMMEDIATE RELEASE

Washington, D.C. – Congressman Ron Paul (TX-14) is pleased to announce that his and Congressman Grayson’s amendment based on HR 1207 has passed in the Financial Services Committee by a vote of 43-26 and will be included in major banking reform legislation.

The Paul/Grayson amendment:

• Removes the blanket restrictions on GAO audits of the Fed
• Allows audit of every item on the Fed’s balance sheet, all credit facilities, all securities purchase programs, etc.
• Retains limited audit exemption on unreleased transcripts and minutes
• Sets 180-day time lag before details of Fed’s market actions may be released
• States that nothing in the amendment shall be construed as interference in or dictation of monetary policy by Congress or the GAO

“While HR 3996, if passed, will grant sweeping new powers to the Federal Reserve, at least with this amendment attached, it won’t be acting in secret anymore. This is a major victory for Federal Reserve transparency and government accountability,” stated Congressman Paul.

How they voted (HR 1207 co-sponsors in bold):

Democrats
MA-04	Rep. Barney Frank		nay
PA-11	Rep. Paul E. Kanjorski		nay
CA-35	Rep. Maxine Waters		nay
NY-14	Rep. Carolyn B. Maloney		nay
IL-04	Rep. Luis V. Gutierrez		nay
NY-12	Rep. Nydia M. Velázquez		nay
NC-12	Rep. Melvin L. Watt		nay
NY-05	Rep. Gary L. Ackerman		nay
CA-27	Rep. Brad Sherman	aye
NY-06	Rep. Gregory W. Meeks		nay
KS-03	Rep. Dennis Moore		nay
MA-08	Rep. Michael E. Capuano		nay
TX-15	Rep. Rubén Hinojosa	aye
MO-01	Rep. William Lacy Clay	aye
NY-04	Rep. Carolyn McCarthy		nay
CA-43	Rep. Joe Baca
MA-09	Rep. Stephen F. Lynch		nay
CA-42	Rep. Gary G. Miller		nay
GA-13	Rep. David Scott	aye
TX-09	Rep. Al Green		nay
MO-05	Rep. Emanuel Cleaver		nay
IL-08	Rep. Melissa L. Bean		nay
WI-04	Rep. Gwen Moore		nay
NH-02	Rep. Paul W. Hodes	aye
MN-05	Rep. Keith Ellison		nay
FL-22	Rep. Ron Klein		nay
OH-06	Rep. Charles Wilson		nay
CO-07	Rep. Ed Perlmutter	aye
IN-02	Rep. Joe Donnelly		nay
IL-14	Rep. Bill Foster		nay
IN-07	Rep. Andre Carson		nay
CA-12	Rep. Jackie Speier	aye
MS-01	Rep. Travis Childers	aye
ID-01	Rep. Walt Minnick	aye
NJ-03	Rep. John Adler	aye
OH-15	Rep. Mary Jo Kilroy		nay
OH-01	Rep. Steve Driehaus	aye
FL-24	Rep. Suzanne Kosmas	aye
FL-08	Rep. Alan Grayson	aye
CT-04	Rep. Jim Himes		nay
MI-09	Rep. Gary Peters	aye
NY-25	Rep. Dan Maffei	aye
Republicans
AL-06	Rep. Spencer Bachus	aye
TX-19	Rep. Randy Neugebauer	aye
DE-01	Rep. Michael N. Castle	aye
NY-03	Rep. Peter King	aye
CA-40	Rep. Edward R. Royce	aye
OK-03	Rep. Frank D. Lucas	aye
TX-14	Rep. Ron Paul (sponsor)	aye
IL-16	Rep. Donald A. Manzullo	aye
NC-03	Rep. Walter B. Jones	aye
IL-13	Rep. Judy Biggert	aye
NC-13	Rep. Brad Miller
WV-02	Rep. Shelley Moore Capito	aye
TX-05	Rep. Jeb Hensarling	aye
NJ-05	Rep. Scott Garrett	aye
SC-03	Rep. J. Gresham Barrett	aye
PA-06	Rep. Jim Gerlach	aye
GA-06	Rep. Tom Price	aye
NC-10	Rep. Patrick T. McHenry	aye
CA-48	Rep. John Campbell	aye
FL-12	Rep. Adam Putnam	aye
MN-06	Rep. Michele Bachmann	aye
TX-24	Rep. Kenny Marchant	aye
MI-11	Rep. Thaddeus McCotter	aye
CA-22	Rep. Kevin McCarthy	aye
FL-15	Rep. Bill Posey	aye
KS-02	Rep. Lynn Jenkins	aye
NY-26	Rep. Christopher Lee	aye
MN-03	Rep. Erik Paulsen	aye
NJ-07	Rep. Leonard Lance	aye

Audit the Fed Bill: Attempted Saturday Night Massacre Underway

nakedcapitalism.com

So get this, sports fans: the day (or maybe two max) before the so-called Audit the Fed bill (a bipartisan initiative to increase transparency) has a torpedo shot at it by a member of the House Financial Services committee, one Mel Watt of North Carolina. Of course, his amendment professes to increase transparence too, but in fact does nothing of the kind, and in fact would reduce the GAO’s audit powers over the Fed.

I’ll admit I’m a bit of a newbie at these matters, but it strains credulity to think Watt came up with this Trojan horse on his own. I’ll bet the Fed provided the language for this stealth operation.

From the Huffington Post:

Rep. Mel Watt, a Democrat from North Carolina, has introduced an amendment intended as an alternative to the measure to audit the Federal Reserve introduced by Reps. Ron Paul (R-Texas) and Alan Grayson’s (D-Fla.) . But instead of increasing transparency, as the amendment claims to do, Watt’s measure would instead make the institution more opaque….

Watt pitched his amendment in a letter to colleagues circulated Tuesday. “While my amendment will certainly fall short of demands by those intent on destroying the independence (if not the existence) of the Fed, the critics of my amendment will have to concede…that my amendment will provide transparency of the Fed’s financial operations that will be completely unprecedented,” he wrote.

In fact, the critics are conceding no such thing. “The Watt Amendment, as written today, actually places new restrictions on the little authority that exists, such as it is, for independent auditing of the Fed,” Grayson said. “It keeps in place all existing restrictions and adds four more. So I don’t see why anybody would reasonably think that it creates unprecedented authority to audit the Fed.”

The devil, as always, is in the details. While Watt’s amendment talks a big game about opening up the Fed to a complete audit, all of the new powers granted must be carried out “each case in accordance with subsections (b) and (e).”

Those subsections of the current law delineate the many restrictions that an auditor confronts when seeking to audit the Fed. Watt’s measure not only leaves those in place but requires all audits to abide by them.

And in addition to the current restrictions in place, it creates new ones. An auditor could not look at loans or liquidity arrangements the Fed enters into, the terms of those arrangements, or the effect of those loans and other liquidity deals on “reserves, the balance sheet or financial condition of a Federal reserve bank or the Federal Reserve System.”

Yves here. That is tantamount to saying you are permitted to operate a strip club as long as the patrons are prohibited from looking at un or underclad bodies. Back to the article:

The Fed has expanded its balance sheet drastically over the last year, entering into exotic swap arrangements and otherwise pumping trillions of dollars into the economy. How it has done so and who has been on the receiving end would remain secret under Watt’s bill.

By contrast, the Paul-Grayson amendment is patterned after Paul’s bill H.R. 1207, which has broad bipartisan support. It has more than 310 cosponsors in a chamber with 435 members.

Paul’s measure would repeal the provisions that Watt’s leaves in place. If every member who cosponsored Paul’s bill votes for it in committee this week, it would have the votes to pass. Watt’s amendment is an effort to peel off votes…

“The new exemptions are described as limited but they are extremely broad,” Grayson said. They’re so broad, in fact, that there would be very little left for an auditor to look into. What could an auditor check up on?

“Count the pencils on the desks,” Grayson speculated. “Perhaps check on proper Metro card usage.”

You can read the full text of the Watt letter at HuffPo.

If this offends you as much as it does me, I hope you’ll make a call or two tomorrow. Here are the Democratic numbers of Congress who support auditing the Fed. They should support the Paul-Grayson amendment and not the Watt amendment. Thanks!

Rep. John Adler, NJ: (202) 225-4765
Rep. Travis Childers, MS: (202) 225-4306
Rep. Steve Driehaus, OH: (202) 225-2216
Rep. Rubén Hinojosa, TX: (202) 225-2531
Rep. Suzanne Kosmas, FL: (877) 956-7627
Rep. Dan Maffei, NY: (202) 225-3701
Rep. Brad Miller, NC: (202) 225-3032
Rep. Walt Minnick, ID: (202) 225-6611
Rep. Ed Perlmutter, CO: (202) 225-2645
Rep. David Scott, GA: (202) 225-2939
Rep. Brad Sherman, CA: (202) 225-5911
Rep. Jackie Speier, CA: (202) 225-3531

Audit the FED is DEAD

Bob Ivry
Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”

The Fed, led by Chairman Ben S. Bernanke, has come under greater congressional scrutiny while attempting to end the financial crisis by bailing out financial firms and more than doubling its balance sheet to $2.16 trillion in the past year. The central bank is also buying $1.25 trillion of securities tied to home loans.

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

Keith Kelly, a spokesman for Watt, declined to comment and said Watt wasn’t immediately available for an interview. Watt’s district includes Charlotte, headquarters of Bank of America Corp., the biggest U.S. lender.

Original Language

Paul said he intends to introduce an amendment to the bill when it comes to the House floor for a vote restoring the legislation’s original language.

Representative Barney Frank, a Democrat from Massachusetts and chairman of the committee, said in interview that he intends to ensure legislation would provide a time lag between FOMC actions and the reporting of them.

Such a provision would “lessen the market impact,” he said on Oct. 20. “The importance is to see that there are no abuses and to judge what they did.”

The legislation will probably be included in a broader Democratic package of financial-regulation changes in the House, Frank said.

More than 30 lawmakers in House investigated: leaked report

Nearly half the members of a House panel in control of Pentagon spending are facing a probe by Congressional ethics investigators, the Washington Post reported.

The revelations came in a cyber-hacked confidential report leaked to the newspaper and reported in its Web site.

Two House ethics offices are probing whether Rep. John Murtha (D-Pa.), chairman of the defense appropriations subcommittee, and six other lawmakers funneled millions in federal funds to clients of an influential lobbying firm in exchange for campaign contributions, the paper reported.

The lobbying outfit, PMA Group, founded by a former Capitol Hill aide, has been under criminal investigation by the Justice Department, the newspaper said.

Details of the House ethics probes were contained in a confidential House report prepared in July that indicated more than 30 lawmakers and several aides are under scrutiny in probes of defense lobbying and corporate influence peddling.

Members of the ethics committee and their staffs sign oaths not to disclose details of past or present investigations. But the 22-page report was accidentally released by a low-level staffer who was working from home via a file-sharing network, committee chairman Rep. Zoe Lofgren (D-Cal.) told The Post.

The staff member was fired, Lofgren said.

"No inference to any misconduct can be made from the fact that a matter is simply before the committee," Lofgren said.

Besides Murtha, two lawmakers previously identified in the inquiry, Reps. Peter Visclosky (D-Ind.) and James Moran (D-Va.), were named in the report.

Also named were: Reps. Norm Dicks (D-Wash.), Marcy Kaptur, (D-Ohio), C.W. (Bill) Young (R-Fla.), and Todd Tiahrt, (R-Kan.). The committee has not issued a formal announcement that they are under investigation.

The committee, which announces when it begins a formal investigation, said it is probing whether Rep. Maxine Waters (D-Cal.) used her influence to help a bank in which her husband owned stock.

Separately, the panel is also investigating whether Rep. Laura Richardson failed to disclose required information on her financial disclosure forms and received special treatment from a lender.

Waters, third highest ranking Democrat on the House Financial Services Committee and chairwoman of its subcommittee on housing, came under scrutiny after former Treasury Department officials said she helped arrange a meeting between regulators and executives at One United Bank last year without mentioning husband Sidney William's financial ties to the institution.

Williams, holds at least $250,000 in the bank's stock and previously had served on its board. Waters' spokesman, Michael Levin, said Williams was no longer on the board when the meeting was arranged.

The committee's probe of Richardson will determine if she violated House rules by failing to disclose property, income and liabilities on her financial disclosure forms.

The committee is also looking into whether she received an impermissible gift or preferential treatment from a lender, "relating to the foreclosure, recession of the foreclosure sale or loan modification agreement" for her property in Sacramento.

Richardson said she has been subjected to "premature judgments, speculation and baseless distractions that will finally be addressed in a fair, unbiased, bipartisan evaluation of the facts."

Read more: http://www.nydailynews.com/news/politics/2009/10/30/2009-10-30_congressional_defense_appropriations_panel_rocked_by_ethics_probe_leaked_by_hack.html#ixzz0VQoJ8PQI

Wells Fargo Sticks it to Card Holders Who Bailed Them Out

Boston Globe:
Wells Fargo raises credit card rates
Wells Fargo & Co. plans to raise interest rates on a majority of credit card customers by 3 percentage points before new rules limiting such increases take effect, a company executive said. “This is something we’ve been contemplating for quite a period of time,’’ Kevin Rhein, group head of card services, said yesterday.

Wells Fargo began advising customers this week that the change takes effect Nov. 30. That’s one day before the chairman of the House Financial Services Committee, Massachusetts Democrat Barney Frank, wants curbs on rates and fees under a new US credit card law to take effect. He plans a hearing today on moving up the date to Dec. 1, from February, to head off increases by card issuers.

Rhein did not comment on whether Frank’s bill had any bearing on Wells Fargo’s decision. The bank is also eliminating over-limit fees, which are imposed when customers exceed their credit limits, he said.

Wells Fargo, the eighth-biggest US card lender, accepted $25 billion from the federal bank bailout program.

Bank of America Corp., the second-biggest US credit card lender, has said it won’t raise rates and fees on customers in good standing before the effective dates of the Credit Card Accountability Responsibility and Disclosure Act, which takes effect in stages.


=============
Is it any wonder then that Ann Minch staged a DEBTOR'S REVOLT! last month in protest after the interest rate on her credit card was jacked up by 30% even though she made all the payments on time?

Message to Bank of America: I've decided to it's time to take a stand against the banksters' usury and greed! If our founding fathers were willing to sacrifice their LIVES for our FREEDOM, then I can certainly sacrifice my credit score and be willing to be sued. I'm staging a DEBTOR'S REVOLT!
============

75% of Americans Support Auditing the Federal Reserve

Image via Wikipedia

Barney Frank who chairs the Financial Service Committee better think twice about watering down Ron Paul's bill. There's talk he intends to morph it into a broader bill which would weaken or defeat Paul's bill all together.

American Banking News reports,
Congressman Ron Paul informed the Campaign for Liberty that the House Financial Services Committee will hold hearings on Paul’s bill to audit the Federal Reserve (H.R. 1207). The hearings are currently tentatively set for Friday, September 25^th at 9:00 AM.

H.R. 1207: the Federal Reserve Transparency Act of 2009 would require the Government Account Office to audit the Federal Reserve’s funding facilities, including the Primary Dealer Credit Facility, Term Securities Lending Facility, and Term Asset-Backed Securities Lending Facility. The GAO would then provide a full report of its findings to Congress. Paul believes that the legislation will shine light on the Federal Reserve’s secrecy and demonstrate to the country that the Federal Reserve doesn’t have the country’s best interest in mind.

Currently H.R. 1207 has 284 cosponsors in the House of Representatives and a similar piece of legislation, S.604: the Federal Reserve Sunshine Act has 24 co-sponsors in the senate. A recent opinion poll indicated that 75% of the American People support the idea of auditing the Federal Reserve.

John Tate, president of the Campaign for Liberty, stated in a press release, ”The Federal Reserve wields tremendous power and is at the center of our current economic storm of deficits, debt and bailouts. Congressman Barney Frank should be commended for his willingness to hold hearings on Fed transparency.”

Now that the legislation is gaining steam, some Libertarian activists are worried that the legislation will be attached to a larger financial regulatory reform bill that will provide increased power to the Federal Reserve or other agencies. Tate stated that attaching the bill to other legislation “would be a betrayal to the intent and spirit of H.R. 1207, and would be vigorously opposed by Campaign for Liberty.”

Misinformation Alert: Barney Frank Never Said That HR 1207 Will Pass In October

Missing Sentence in Transcript Causes Premature HR 1207 Victory Celebration

Several blogs and forums reported that Chairman of the House Financial Services Committee, Barney Frank, said that Ron Paul’s bill to audit the Federal Reserve, HR 1207, will pass in October.

Incorrect Reports about Barney Frank’s Statement on HR 1207

• Washington Times: Barney Frank says Ron Paul bill will pass
• Politico: Barney: Fed audit bill will pass in October
• Business Insider: Barney Frank: Yes, We Will Pass Ron Paul’s “Audit The Fed” Bill
• United Liberty: Frank: Vote on HR 1207 in October
• Daily Paul: Video: Barney Frank Says House Will Pass HR1207 in October
• ZeroHedge: Barney Frank Says The House Will Pass HR 1207 In October
• Mish: Barney Frank Says Ron Paul’s Audit The Fed Bill Will Pass In October – (Update posted)
• Washington Independent: Ron Paul’s ‘Audit the Fed’ Bill to Get October Vote?

The source of the rumor seems to be the following video.

A sloppy and incomplete transcript, which appears to have originated at the Washington Times which was originally prepared by Mish and then copied by the Washington Times, is making the rounds. The transcript is missing an essential sentence, which is marked in bold:

Barney Frank: “I have been pushing for more openness from the Fed. I want to restrict the powers of the Federal Reserve. First of all, the Fed will be the major losers of power if we are successful, as I believe we will be, setting up a financial product protection commission. The Federal Reserve is now charged with protecting consumers. They were supposed to do subprime mortgage restrictions.

Congress in 1994 gave the Fed powers to ban subprime mortgages. Alan Greenspan refused to do it. They had the power to ban credit card abuses. Under Greenspan they did nothing. Under Bernanke they started but only after Congress acted.That’s one of the reasons why in the new consumer protection agency, we will take away from the Federal reserve the power to go consumer protection.

Secondly, they have has since 1932 a right under Herbert Hoover to intervene in the economy whenever they could. Last September, the Federal Reserve they were going to advance $82 billion to AIG. I was kind of surprised and said, ‘Mr Bernanke do you have $82 billion?’ Mr. Bernanke replied, ‘I have $800 billion and under section 13.3 of the Federal Reserve Act they can lend anything they want.’

We are going to curtail that lending power. We are going to put some restrictions on it.

Finally we will subject them to a complete audit. I have been working with Ron Paul, who is the main sponsor of that bill. He agrees that we don’t want to have the audit appear as if it influences monetary policy as that would be inflationary.

One of the things the audit will show you is what the Federal Reserve buys itself. And that will be made public, but not instantly because if it was made instantly people would be trading off it, so the data would be released after a time period of several months, enough time so it will not be market sensitive. That will be part of the overall federal regulation that we are redacting. This will probably pass in October.”

(Accurate transcript here.)

With “This will probably pass in October”, Frank is referring not to HR 1207, but to his own financial regulation bill, which might or might not include some aspects of Ron Paul’s HR 1207. The preceding sentence, “That will be part of the overall federal regulation that we are redacting,” is for some reason missing from the widely distributed transcript, and has therefore been completely ignored by bloggers and commentators.

In recent weeks Ron Paul repeatedly warned against just this sort of thing happening: that HR 1207 might become part of a more comprehensive financial regulation bill and be watered down so that it appeases the angry masses without instituting any real changes. It would be an irony of history if that happened — if HR 1207 were watered down and integrated into an unconstitutional bill that Ron Paul would have to vote against.

What did Ron Paul really say?

It has become fashionable for the political elite to try to distort Ron Paul’s statements for political gain or even put entirely new words into his mouth. Just the other day, Treasury Secretary Tim Geithner said, “Even [Ron Paul] recognizes how important it is to us to have the Fed independent of politics.”

Now Barney Frank claims that “[Ron Paul] agrees that we don’t want to have the audit appear as if it influences monetary policy as that would be inflationary.”

Ron Paul never said that an audit of the Federal Reserve would be inflationary. In fact, he has credibly demonstrated the exact opposite: that the secretive Federal Reserve itself is responsible for inflation, with the dollar having lost 96% of its value since the Fed’s creation in 1913.

Here is what Ron Paul actually said about HR 1207, the bill to audit the Federal Reserve, and why only a real audit will protect the public’s interest.

Ron Paul: “Mr. Speaker, the big guns have lined up against HR 1207, the bill to audit the Federal Reserve. What is it that they are so concerned about? What information are they hiding from the American people? The screed is: transparency is okay except for those things they don’t want to be transparent.

Federal Reserve Chairman Ben Bernanke, argues that HR 1207, the legislation to audit the Federal Reserve, would politicize monetary policy. He claims that monetary policy must remain independent, that is; secret. He ignores history because chairmen of the Federal Reserve in the past, especially when up for reappointment, do their best to accommodate the president with politically driven low interest rates and a bubble economy.

Former Federal Reserve Board Chairman Arthur Burns, when asked about all the inflation he brought about in 1971 before Nixon’s reelection, said that the Fed has to do what the president wants it to do, or it would lose its independence. That about tells you everything.

Not by accident Chairman Burns strongly supported Nixon’s program of wage and price controls the same year, but I guess that’s not political. Is not making secret deals with the likes of Goldman Sachs, international financial institutions, foreign governments and foreign central banks politicizing monetary policy?

Bernanke argues that the knowledge that their discussions and decisions will one day be scrutinized will compromise the freedom of the Open Market Committee to pursue sound policy. If it is sound and honest and serves no special interest, what’s the problem?

He claims that HR 1207 would give power to Congress to affect monetary policy. He dreamt this up to instill fear, an old statist trick to justify government power. HR 1207 does nothing of the sort. He suggested that the day after an FOMC meeting, Congress could send in the GAO to demand an audit of everything said and done. This is hardly the case. The FOMC function under HR 1207 would not change.

The detailed transcripts of the FOMC meetings are released every 5 years, so why would this be so different and what is it that they don’t want the American people to know? Is there something about the transcripts that need to be kept secret, or are the transcripts actually not verbatim?

Fed sycophants argue that an audit would destroy the financial markets’ faith in the Fed. They say this in the midst of the greatest financial crisis in history brought on by none other than the Federal Reserve. In fact, Chairman Bernanke stated on November 14th 2007, “A considerable amount of evidence indicates that Central Bank transparency increases the effectiveness of monetary policy and enhances economic and financial performance”.

They also argue that an audit would hurt the value of the U.S. dollar. In fact, the Fed, in less than a 100 years of its existence, has reduced the value of the 1914 dollar by 96%.

They claim HR 1207 would raise interest rates. How could it? The Fed sets interest rates and the bill doesn’t interfere with monetary policy. Congress would have no say in the matter and besides, Congress likes low interest rates.

It is argued that the Fed wouldn’t be free to raise interest rates if they thought it necessary. But Bernanke has already assured the Congress that rates are going to stay low for the foreseeable future. And again, this bill does nothing to allow Congress to interfere with interest rate setting.

Fed supporters claim that they want to protect the public’s interest with their secrecy. But the banks and Wall Streets are the opponents of HR 1207, and the people are for it. Just who best represents the public’s interest?

The real question is: why are Wall Street and the Fed so hysterically opposed to HR 1207? Just what information are they so anxious to keep secret? Only an audit of the Federal Reserve will answer these questions.”

75% Want A Real Audit

We need to keep up the pressure to make sure that HR 1207 itself is put up for vote. 75% of the American people want a real audit of the Federal Reserve, not a pretend investigation that goes to great pains not to ruffle any feathers, claiming that too close a look at what the Wizard is doing behind the curtain would be “inflationary” (Frank) and “problematic for the country” (Geithner).