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Does the modified Audit the Fed amendment of Bernie Sanders do the job?

We probably need to better define what "the job" to be done is, to definitively judge the worth of the original Sanders Audit the Fed amendment as compared to what’s in the modified version that suddenly appeared Thursday. Ron Paul clearly does not think that the modified (or original?) Sanders amendment does "the job," based perhaps on the limits of language like this in existing law governing the Government Accountability Office (GAO):

(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Board and Federal reserve banks may not include—

(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;

(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;

(3) Except as provided under paragraph (4), an officer or employee of the Government Accountability Office may not disclose to any person outside the Government Accountability Office information obtained in audits or examinations conducted under subsection (e) and maintained as confidential by the Board or the Federal reserve banks.

(4) This subsection shall not–

(A) authorize an officer or employee of an agency to withhold information from any committee or subcommittee of jurisdiction of Congress, or any member of such committee or subcommittee; or

(B) limit any disclosure by the Government Accountability Office to any committee or subcommittee of jurisdiction of Congress, or any member of such committee or subcommittee.

The original Audit the Fed amendment of Bernie Sanders would have changed all of that to read:

(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Federal Reserve Board and Federal reserve banks shall not include unreleased transcripts or minutes of meetings of the Board of Governors or of the Federal Open Market Committee. To the extent that an audit deals with individual market actions, records related to such actions shall only be released by the Comptroller General after 180 days have elapsed following the effective date of such actions.

That change is not made in the modified Sanders Audit the Fed amendment. However, for what’s it worth, as far as I can tell the original amendment nowhere explicitly directed the GAO to audit or focus on foreign central bank or other foreign transactions by the Fed.

So… What did Bernie Sanders – or at least, White House lawyers, working with Federal Reserve lawyers, working with Banking Committee staff lawyers, working with Bernie Sanders and his staff – change, of significance, between his original "Audit the Fed" amendment (SA 3738) and his "modified" Audit the Fed amendment introduced, in the midst of floor debate, on May 6, 2010?

Well, to begin with, he (or they) rather comprehensively redrafted the Audit the Fed amendment, at least in part to leave the existing language of the underlying Dodd/Lincoln bill (technically, a substitute amendment, SA 3739) unmolested. As a result, no language of the underlying Dodd bill/amendment is now being changed by the modified Sanders Audit the Fed amendment (instead new language is being tacked on to it).

For example, Dodd is proposing the following new authority under the audit powers of the Government Accountability Office, in a new subsection (f), of Section 714 of Title 31 of the U.S.Code [see here for the updated current version of that section of the law, which is the same law from which I quoted subsection (b) above]:

(f) Reviews of Credit Facilities of the Federal Reserve System.–

(1) DEFINITION.–In this subsection, the term "credit facility" means a program or facility, including any special purpose vehicle or other entity established by or on behalf of the Board of Governors of the Federal Reserve System or a Federal reserve bank, authorized by the Board of Governors under the third undesignated paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 343), that is not subject to audit under subsection (e), including–

(A) the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility;

(B) the Term Asset-Backed Securities Loan Facility;

(C) the Primary Dealer Credit Facility;

(D) the Commercial Paper Funding Facility; and

(E) the Term Securities Lending Facility.

(2) AUTHORITY FOR REVIEWS AND EXAMINATIONS.–Subject to paragraph (3), and notwithstanding any limitation in subsection (b) on the auditing and oversight of certain functions of the Board of Governors of the Federal Reserve System or any Federal reserve bank, the Comptroller General of the United States may conduct reviews, including onsite examinations, of the Board of Governors, a Federal reserve bank, or a credit facility, if the Comptroller General determines that such reviews are appropriate, solely for the purposes of assessing, with respect to a credit facility–

(A) the operational integrity, accounting, financial reporting, and internal controls of the credit facility;

(B) the effectiveness of the collateral policies established for the facility in mitigating risk to the relevant Federal reserve bank and taxpayers;

(C) whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility; and

(D) the policies governing the use, selection, or payment of third-party contractors by or for any credit facility.

(3) REPORTS AND DELAYED DISCLOSURE.–

(A) REPORTS REQUIRED.–A report on each review conducted under paragraph (2) shall be submitted by the Comptroller General to the Congress before the end of the 90-day period beginning on the date on which such review is completed.

(B) CONTENTS.–The report under subparagraph (A) shall include a detailed description of the findings and conclusions of the Comptroller General with respect to the matters described in paragraph (2) that were reviewed and are the subject of the report, together with such recommendations for legislative or administrative action relating to such matters as the Comptroller General may determine to be appropriate.

(C) DELAYED RELEASE OF CERTAIN INFORMATION.–

(i) IN GENERAL.–The Comptroller General shall not disclose to any person or entity, including to Congress, the names or identifying details of specific participants in any credit facility, the amounts borrowed by specific participants in any credit facility, or identifying details regarding assets or collateral held by, under, or in connection with any credit facility, and any report provided under subparagraph (A) shall be redacted to ensure that such names and details are not disclosed.

(ii) DELAYED RELEASE.–The nondisclosure obligation under clause (i) shall expire with respect to any participant on the date on which the Board of Governors, directly or through a Federal reserve bank, publicly discloses the identity of the subject participant or the identifying details of the subject assets or collateral.

(iii) GENERAL RELEASE.–The Comptroller General shall release a nonredacted version of any report on a credit facility 1 year after the effective date of the termination by the Board of Governors of the authorization for the credit facility. For purposes of this clause, a credit facility shall be deemed to have terminated 24 months after the date on which the credit facility ceases to make extensions of credit and loans, unless the credit facility is otherwise terminated by the Board of Governors.

(iv) EXCEPTIONS.–The nondisclosure obligation under clause (i) shall not apply to the credit facilities Maiden Lane, Maiden Lane II, and Maiden Lane III.

Bernie Sanders, in his original Audit the Fed amendment, replaced that new subsection (f), with one of his own, which read:

(f) Audit of and Report on the Federal Reserve System.

(1) IN GENERAL.–An audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks under subsection (b) shall be completed within 12 months of the enactment of the Restoring American Financial Stability Act of 2010.

(2) REPORT.–

(A) REQUIRED.–A report on the audit referred to in paragraph (1) shall be submitted by the Comptroller General to the Congress before the end of the 90-day period beginning on the date on which such audit is completed and made available to–

(i) the Speaker of the House of Representatives;

(ii) the majority and minority leaders of the House of Representatives;

(iii) the majority and minority leaders of the Senate;

(iv) the Chairman and Ranking Member of the appropriate committees and each subcommittee of jurisdiction in the House of Representatives and the Senate; and

(v) any other Member of Congress who requests it.

(B) CONTENTS.–The report under subparagraph (A) shall include a detailed description of the findings and conclusion of the Comptroller General with respect to the audit that is the subject of the report.

(3) CONSTRUCTION.–Nothing in this subsection shall be construed–

(A) as interference in or dictation of monetary policy to the Federal Reserve System by the Congress or the Government Accountability Office; or

(B) to limit the ability of the Government Accountability Office to perform additional audits of the Board of Governors of the Federal Reserve System or of the Federal reserve banks.

However, Bernie’s new subsection (f), posted just above, disappeared in his modified Audit the Fed amendment (leaving the Dodd version intact), and was replaced by audit language proposed as a new freestanding Section 1159 of the Dodd bill, which reads as follows [not including subsection (c) regarding "Publication of Board Actions" which I’ll get to below]:

At the end of title XI [of the Dodd bill], add the following:

SEC. 1159. GAO AUDIT OF THE FEDERAL RESERVE FACILITIES; PUBLICATION OF BOARD ACTIONS.

(a) GAO Audit.

(1) IN GENERAL.–Notwithstanding section 714(b) of title 31, United States Code, or any other provision of law, the Comptroller General of the United States (in this subsection referred to as the "Comptroller General") shall conduct a one-time audit of all loans and other financial assistance provided during the period beginning on December 1, 2007 and ending on the date of enactment of this Act by the Board of Governors under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of the third undesignated paragraph of section 13 of the Federal Reserve Act.

(2) ASSESSMENTS.–In conducting the audit under paragraph (1), the Comptroller General shall assess

(A) the operational integrity, accounting, financial reporting, and internal controls of the credit facility;

(B) the effectiveness of the collateral policies established for the facility in mitigating risk to the relevant Federal reserve bank and taxpayers;

(C) whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility;

(D) the policies governing the use, selection, or payment of third-party contractors by or for any credit facility; and

(E) whether there were conflicts of interest with respect to the manner in which such facility was established or operated.

(3) TIMING.–The audit required by this subsection shall be commenced not later than 30 days after the date of enactment of this Act, and shall be completed not later than 12 months after that date of enactment.

(4) REPORT REQUIRED.–The Comptroller General shall submit a report on the audit conducted under paragraph (1) to the Congress not later than 12 months after the date of enactment of this Act, and such report shall be made available to–

(A) the Speaker of the House of Representatives;

(B) the majority and minority leaders of the House of Representatives;

(C) the majority and minority leaders of the Senate;

(D) the Chairman and Ranking Member of the Committee on Banking, Housing, and Urban Affairs of the Senate and of the Committee on Financial Services of the House of Representatives; and

(E) any member of Congress who requests it.

(b) Audit of Federal Reserve Bank Governance.

(1) AUDIT.–

(A) IN GENERAL.–Not later than 1 year after the date of enactment of this Act, the Comptroller General shall complete an audit of the governance of the Federal reserve bank system.

(B) REQUIRED EXAMINATIONS.–The audit required under subparagraph (A) shall–

(i) examine the extent to which the current system of appointing Federal reserve bank directors effectively represents "the public, without discrimination on the basis of race, creed, color, sex or national origin, and with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumers" in the selection of bank directors, as such requirement is set forth under section 4 of the Federal Reserve Act;

(ii) examine whether there are actual or potential conflicts of interest created when the directors of Federal reserve banks, which execute the supervisory functions of the Board of Governors of the Federal Reserve System, are elected by member banks;

(iii) examine the establishment and operations of each facility described in subsection (a)(1) and each Federal reserve bank involved in the establishment and operations thereof; and

(iv) identify changes to selection procedures for Federal reserve bank directors, or to other aspects of Federal reserve bank governance, that would–

(I) improve how the public is represented;

(II) eliminate actual or potential conflicts of interest in bank supervision;

(III) increase the availability of information useful for the formation and execution of monetary policy; or

(IV) in other ways increase the effectiveness or efficiency of reserve banks.

(2) REPORT REQUIRED.–A report on the audit conducted under paragraph (1) shall be submitted by the Comptroller General to the Congress before the end of the 90-day period beginning on the date on which such audit is completed, and such report shall be made available to–

(A) the Speaker of the House of Representatives;

(B) the majority and minority leaders of the House of Representatives;

(C) the majority and minority leaders of the Senate;

(D) the Chairman and Ranking Member of the Committee on Banking, Housing, and Urban Affairs of the Senate and of the Committee on Financial Services of the House of Representatives; and

(E) any member of Congress who requests it.

The original amendment provided for "an audit" of "the Board of Governors of the Federal Reserve System and the Federal reserve banks" with no real specifics as to the focus of the audit, while the modified amendment [in Section 1159(b) above] provides for "an audit" of "the governance of the Federal reserve bank system" with a detailed examination focus spelled out. [Net positive for the modified Audit the Fed amendment, I’d say, especially considering the extensive new audit authority also provided to the Comptroller General as retained by Senator Dodd’s new subsection (f) of Title 31’s Section 714.]

Then, of course, there’s the "GAO (or bailout) audit" [Section 1159(a) above], which started out in the original Sanders Audit the Fed amendment this way:

SEC. 1153. PUBLICATION OF BOARD ACTIONS.

(a) In General.–Notwithstanding any other provision of law, the Board of Governors [of the Federal Reserve] shall publish on its website, with respect to all loans and other financial assistance it has provided since December 1, 2007 under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of the third undesignated paragraph of section 13 of the Federal Reserve Act–

(1) the identity of each business, individual, entity, or foreign central bank to which the Board of Governors [of the Federal Reserve] has provided such assistance;

(2) the type of financial assistance provided to that business, individual, entity, or foreign central bank;

(3) the value or amount of that financial assistance;

(4) the date on which the financial assistance was provided;

(5) the specific terms of any repayment expected, including the repayment time period, interest charges, collateral, limitations on executive compensation or dividends, and other material terms; and

(6) the specific rationale for providing assistance in each instance.

(b) Timing.–The Board of Governors shall publish information required by subsection (a)–

(1) not later than 30 days after the date of enactment of this Act; and

(2) in updated form, not less frequently than once annually.

Aside from the fact that the language just above in the original Audit the Fed amendment would have provided for an on-going, annual report from the Fed, it didn’t provide for an actual (one-time) GAO Audit of the same information, as the modified amendment does. [Which explains the comment of Sanders, as he introduced his modifications on the floor Thursday, that: "I am proud to say these modifications have been worked out with Senator Dodd and would allow the GAO to conduct a top-to-bottom audit of all of the Federal Reserve’s emergency lending activities since December 1, 2007. In addition, the modifications require the Fed to put on its Web site all of the recipients of over $2 trillion in emergency assistance since December 1, 2007."]

As Senator Sanders’s comments indicated, the following provision in the modified Audit the Fed amendment carried over from the original Audit the Fed amendment more or less intact (except as to timing), which would impose a duty on the Federal Reserve Board itself to reveal on its website information similar to that which the GAO would be auditing over the next year:

[SEC. 1159]

(c) Publication of Board Actions.–Notwithstanding any other provision of law, the Board of Governors shall publish on its website, not later than December 1, 2010, with respect to all loans and other financial assistance it has provided during the period beginning on December 1, 2007 and ending on the date of enactment of this Act under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of the third undesignated paragraph of section 13 of the Federal Reserve Act–

(1) the identity of each business, individual, entity, or foreign central bank to which the Board of Governors has provided such assistance;

(2) the type of financial assistance provided to that business, individual, entity, or foreign central bank;

(3) the value or amount of that financial assistance;

(4) the date on which the financial assistance was provided;

(5) the specific terms of any repayment expected, including the repayment time period, interest charges, collateral, limitations on executive compensation or dividends, and other material terms; and

(6) the specific rationale for each such facility or program.

Key differences between the original Sanders Audit the Fed amendment and the modified Audit the Fed amendment:

1. The timing of the website publication of the details of the bailout funding by the Federal Reserve (which is now separate and apart from the GAO Audit of those same details, which can take up to a year to be completed) has been delayed from 30 days after enactment of the law, to December 1, 2010, and the report does not need to include any information from dates after the enactment of the law. [A net negative, although the modified amendment now has a GAO Audit of the same information, which the original amendment did not.]

2. The "GAO (bailout) Audit" and the Federal Reserve website report will be a one-time audit and report that do not extend beyond the date of enactment of the law, rather than being open-ended annual auditing and reporting requirements of the GAO and Federal Reserve. [Probably a net negative of the modified amendment.]

3. Maiden Lane, Maiden Lane II, and Maiden Lane III are now included in the audit and reporting requirements. [A net positive of the modified amendment.]

4. Instead of providing “the specific rationale for providing assistance in each instance” as in the original Sanders amendment, in the modified amendment the Fed will be providing “the specific rationale for each such facility or program.” [Seems like a wash.]

It took me quite a while (way too long, in fact) to wade through all the oblique underlying references, and to find the language actually being changed, so that I could compare apples to apples. But now that I have, unless I’m missing something obvious – and note that I’m not comparing the House version of Audit the Fed to the original or modified Sanders versions of Audit the Fed, which may make the House language look golden by comparison – I think I can safely say that the modified Sanders Audit the Fed language, much tightened-up from his original draft, seems no less worthy than the original amendment, and quite possibly a definite improvement over the first version, on the merits. Which is both a pleasant surprise, and rather hard to believe, given the usual outcome of Executive Branch interference (as seems to have been the case here) in the legislative process…

Please feel free to disagree and/or to point out where I’ve overlooked the obvious or not-so-obvious.

Point of Interest: "The third undesignated paragraph of Section 13 of the Federal Reserve Act" [which is referred to quite often in the language involved here] is the loophole/escape hatch that the Federal Reserve had rarely, if ever, used, since its passage in 1932, but which came into prominence during the 2008/2009 bailouts, when people questioned whether the Fed had the authority to do what it was doing. It’s being revised by Dodd’s legislation, as shown in Comment 12 here. The original Sanders Audit the Fed amendment would have stricken Subparagraph D of those changes to Section 13, Paragraph 3 (Subparagraph D is written with excessive deference to the Federal Reserve), to strengthen new reporting requirements of the Federal Reserve in future emergency lending situations. That change to the underlying Dodd language was also dropped in the modified Sanders Audit the Fed amendment.

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