The first thorough audit of the Federal Reserve by the Government Accountability Office, revealed that between December 1, 2007 to July 21, 2010, the Federal Reserve provided $16.1 Trillion in secret loans to bail out American and Foreign banks! For a break down of the loans, scroll down to page 131 of the report. The key issue is that this occurred with a shocking lack of transparency and oversight. This is not only a question of political principles, but of economics, because the Federal Reserve's expansionary monetary policies of the past decade played a key role in the formation of the housing bubble, whose collapse played a key role in the severe economic downturn that we are now facing. And the Fed enabled politically connected financial firms to engage in the socialization of loss and the privatization of gain, which progressives and free market conservatives alike find deeply troubling.
While some (dubiously) argue that this massive intervention helped salvage the economy, the lack of transparency and oversight allowed for clear conflicts of interest that reek of outright corruption. For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance! And in 2008, William Dudley, who is now the New York Fed President, was granted a waiver to allow him to keep investments in AIG and General Electric at the same time the said firms were being bailed out. In addition, the Fed outsourced virtually all of its emergency operations, mostly through no bid contracts, to politically connected corporations, such as JP Morgan and Morgan Chase. This is a clear example of the crony capitalism that we once though was confined to the sclerotic economics of the third world.
I am in complete agreement with Bernie Sanders that "no agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president." Because of a complete lack of transparency, the risk that these loans posed to American Taxpayers and the economy as a whole was not known. Nor was it determined to what extent were these loans driven by foreign influence in the Federal Reserve, that may have also constituted a conflict of interest.
On a broader level, the expansionary monetary policies that occurred surely required open congressional debate and oversight. Nonpartisan economists, with no conflicts of interest should have informed the congress and the public at large of the potential costs and benefits, risks and rewards of such bold monetary actions, before they were undertaken. For such policies run the risk of generating inflation, debasing the dollar and a host of other unintended consequences. Directors of the Federal Reserve argue that they acted within the powers granted to them by the Federal Reserve Act Of 1913. Hence, Dr. Ron Paul is correct, not only must we expand the audit of the Fed, but we must also reconsider its role as the steward of the American Economy. Progressives and conservatives alike should question the wisdom of placing vital monetary decisions in the hands of a quasi-governmental agency beset with cronyism and conflicts of interest. Why this is not on the front page of every American Newspaper speaks very poorly of the media, or perhaps of the American People, whose vigilance is vital in maintaining the integrity of the economic and political life of our republic.