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Audit the Fed Was Not a Victory

I am of those, sometimes called cynics, who question whether Bernie Sanders’ audit the Fed amendment was a real victory for us. These are my reasons:

1. It will go from December 1, 2007 to the date of enactment of the bill. This leaves out the run up to the housing bubble burst and the burst itself (which I usually fix at August 9, 2007 when the BNP Paribas funds froze starting the first big panic).

2. It is a one time only audit. Most here think there will be another crash in the not too distant future although timeframes vary. The lack of ongoing audits encourages moral hazard at the Fed in dealing with it. An audit is a means to accountability, not accountability itself. It is not clear if another audit will ever happen but even if it does, as happened this time around, it will be greatly delayed. As for accountability, we are still waiting for both the housing bubble (2 1/2 years ago) and the meltdown (1 1/2 years ago).

3. The wording of the amendment suggests that while programs will be audited the individual transactions within them may not be. If this is correct, I am not sure how this advances us that much from what we know now.

4. I am also unsure if there will be much of a context in which to place the audit. My impression is that the Open Markets Committee remains out of bounds. So we will not get why the Fed acted as it did.

5. I have seen no indication of what kind of an auditing approach will be used. Will it be mark to market or mark to model? If it is mark to model, then the audit becomes essentially meaningless.

6. The 96-0 vote is not something to applaud. It is deeply suspicious. One view is that Senators were so afraid of voting against this that a unanimous vote was a foregone conclusion. Yet these same Senators were not afraid a few minutes later to defeat the Vitter amendment which contained the original and more substantial Paul-Grayson auditing language. In a hyper-partisan, bitterly divided Senate, the truth is that only something as innocuous as naming a post office branch can get passed with a vote like this. I mean if you want to sell a vote like this one, 20-30 no votes would have given the impression that there was something here to oppose, that there was some substance. Unanimity, on the other hand, especially in an election year, conveys the idea that there was nothing to oppose because there was nothing there.

7. Along the lines of the above, Senators have shown great willingness to kill off every other aspect of meaningful reform. The original Dodd bill is limp beyond belief. The Frank bill is not much better. Amendments to limit bank size or return Glass-Steagall were successfully spiked without great effort or fear on the part of Senators.

So the idea that somehow the audit the Fed amendment was different is fanciful. If Senators had been so afraid, how is it that they found the "courage" to water it down before passing it? The story that this represents some kind of victory either for progressives or a progressive-conservative coalition simply does not hold together.

Now you may disagree on some of the details of the politics and/or the effects of the amendment, but overall the underlying thesis that this was not a victory, or only a cosmetic victory at best, stands.

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Hugh

Hugh

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