ALG to Congressman Paul: Turn off the New York Feds Paper Shredders
By Robert Romano
Usually, one imagines that at the Federal Reserve, the sound that's heard is the printing presses running at record speeds as the nation attempts to print its way out of the worst financial crisis since the Great Depression. Indeed, the Fed has expanded its balance sheet to some $2.06 trillion since the crisis hit in 2007.
But today, one would likely hear a slightly different noise emanating from one particular branch of the Fed in the windswept streets of New York City—that of paper shredders running in overdrive. Why?
On Tuesday, the Southern District Court of New York granted Bloomberg News' Freedom of Information Act (FOIA) request to the Federal Reserve Board of Governors to produce the details of some $2 trillion in emergency loans that were made by the nation's central bank in 2008.
The court ruled that the Board must comply with the request and produce the relevant documents to Bloomberg. These include who received the $2 trillion of loans, the terms under which they were received, and what collateral was taken by the Reserve branches in exchange for the loans.
To date, the Board has refused, and withheld much of the records—some 231 pages of documents—claiming certain exemptions of the Act. They argued that documents in possession of branches of the Federal Reserve, including the New York Federal Reserve, were not applicable to the request as they were not agencies of the government.
Unfortunately, Judge Loretta Preska punted by refraining from ruling on whether the Reserve Branches are indeed agencies. But, she did order that the Board had until Monday, August 29th, to produce the 231 pages of documents. And until September 14th to search for records relevant to the request that constitute "Records of the Board" held by the New York Federal Reserve.
One can almost hear those paper shredders operating like a buzz saw now.
And only one man may be able to put a stop to it, before it is too late, and use this ruling to usher in a new era of transparency at the Federal Reserve.
On February 26th, 2009, Congressman Ron Paul (R-TX) introduced H.R. 1207, the "Federal Reserve Transparency Act of 2009," which would require an audit by the Government Accountability Office (GAO) of the operations of the Federal Reserve's Board of Governors and regional branches by 2010.
Under current law, the GAO, according to 31 USCA §714, cannot audit and exempts from public oversight of the Federal Reserve:
- transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
- deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, open market operations;
- transactions made under the direction of the Federal Open Market Committee; or
- a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to items.
Making matters worse, according to Bloomberg News, the Fed as of March 31st had committed, lent or disbursed some $7.76 trillion in fiat currency over the preceding 20 months. All in secret, well away from the prying eyes of the American taxpayer.
In the least, it is now safe to say that Bloomberg—in the unlikely event that the Board actually complies with the ruling—could actually have access to more information on the Fed's emergency lending facilities than the GAO itself. In particular, relating to information on emergency lending and the Reserve's regional banks.
But the American people should not have to turn to a news agency and months if not years of litigation to receive answers to very important questions regarding the practices of a constitutionally-questionable central bank that now seeks in light of the financial crisis yet more powers to become the nation's extralegal, out-of-control "systemic risk" regulator.
Certainly not at the rate the Fed is inflating the currency. The crisis is the system itself. And its failsafe is secrecy.
Without it, the world would look a lot different. On paper and in practice. Without it, the endless boom-to-bust economic cycles that fuel explosive growth in certain sectors, whether in technology or housing or commodities, and leave the economy in ashes in its wake, could not occur. Without it, corporations could not be bailed out overnight with hundreds of billions of taxpayer dollars. Without it, fiat money would not be printed willy-nilly—all without proper scrutiny.
Now that the Southern District Court of New York has ordered the Board of Governors to furnish relevant documents held both by it and the New York Fed, Congressman Paul needs to now turn to his 282 co-sponsors of H.R. 1207 and ask them to do something courageous.
Congressman Paul should, upon return from the August recess, immediately begin gathering signatures for a discharge petition for his bill to bring it to the floor of the House for a vote. Unfortunately, for now, Paul's office is working through the House Financial Services committee, which is chaired by Congressman Barney Frank (D-CA).
On that committee, 39 of its 71 members are co-sponsors for H.R. 1207, including 10 Democrats. More than a majority. And yet no vote sending the bill to the floor has occurred. Nor is it likely to occur so long as Frank chairs that committee. He is, after all, the politician who stood in the way of reforming mortgage giants Fannie Mae and Freddie Mac. He is the culprit who played such a large part of the mortgage-backed securities crisis.
Under Frank's undersight, Fannie and Freddie sold over $5 trillion of mortgage-backed securities all over the world on the secondary market, much of it now worthless. The capital for those home purchases, for the most part, came directly out of the Federal Reserve System via mortgage loans. And as more loans and securities were sold, yet more were originated and created in an unsustainable binge until finally, the market collapsed.
An audit of the entire system would necessarily reveal and undermine the extent of Fed funds flowing directly into the nation's housing system, Frank's own personal political protection racket. He would, necessarily, be biting the hand that has fed him so handsomely over the years. One might sooner expect a cold day in Hell.
Congressman Ron Paul is falling victim to "Potomac Fever" -- he believes his "close relationship" with Frank will produce something positive. It will not. If Barney will not schedule a mark-up on the bill when they come back, then he should take it away from him and put it directly on the floor with a discharge petition. Anything less would be cowardess.
In the meantime, while the legislation slowly dies in committee, the Fed's paper shredders will be operating in overtime. Come September 14th, will there be any records left of the $2 trillion of mysterious loans at the New York Fed?
Paul must go further than he has ever gone. He should call for the Fed to immediately comply with the court ruling and disclose the recipients of the loans.
If not, then all it appears Congressman Paul may accomplish this year is to help provide political cover for vulnerable Democrats who want to pretend to be holding the nation's central bank accountable. When, on the contrary, it is they, the nation's representatives, who should be held accountable for allowing a system to operate with such impunity and secrecy.
And with such devastating effect upon the American people, their families, the value of their earnings, and that of their livelihoods.
In short, Congressman Paul needs to turn off the New York's Fed's paper shredders. He can begin to do so with a discharge petition that forces co-sponsors of his bill to put their money where their mouths are. He can do so by calling the Fed to account in light of Bloomberg ruling. He needs to do so now--before it's too late; and before these thieves flee the scene of the crime—with the sounds of the shredders still echoing in their ears.
Robert Romano is the ALG Senior News Editor.