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Project on Government Oversight




Senate Passes "Audit the Fed" Amendment, Rejects Proposal for Ongoing Audit

May 12, 2010 


Yesterday the Senate voted 96-0 to pass a modified amendment introduced by Sen. Bernie Sanders (I-VT) allowing the Government Accountability Office (GAO) to conduct a one-time audit of the Federal Reserve’s emergency bailout programs. But an amendment introduced by Sen. David Vitter (R-LA) calling for an ongoing audit was voted down 62-37.

The Sanders amendment is still a huge step in the right direction, allowing the GAO to audit the trillions of dollars in emergency lending provided by the Fed in response to the financial crisis. This audit will cover programs such as the Fed’s agency mortgage-backed securities purchase program—which would not have been covered under the main financial regulatory bill—and will require the GAO to assess the integrity of the credit facilities and to determine whether any of the facilities showed favoritism toward certain participants, among other things. The Sanders amendment also requires the Fed to make key information about the emergency lending programs available on its website, including the names of the firms that accessed the emergency lending facilities, the amounts borrowed, and the lending terms (other versions of the bill did not have this public transparency requirement).

But after negotiating with Senate Banking Committee Chairman Christopher Dodd (D-CT) and administration officials, Sen. Sanders agreed to modify the amendment so that it only requires a “one-time audit of all loans and other financial assistance provided” from December 1, 2007 until the bill is enacted. Sen. Vitter introduced a separate amendment calling for an ongoing audit, as was originally proposed by Reps. Ron Paul (R-TX) and Alan Grayson (D-FL) in legislation that passed the House last year. But the Senate rejected Vitter’s proposal just minutes after it passed the Sanders amendment.

Rep. Paul has slammed the modified Sanders amendment, stating that it “guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed,” and arguing that it should now be called a “disclosure” rather than an “audit.”

It seems clear that the GAO should have the ability to audit the Fed’s response to future financial crises, and we hope that additional measures will be introduced on the Senate floor or in conference requiring that the audits be conducted on a continuous basis. But even if it is just a one-time “disclosure,” the audit required by the Sanders amendment would go a long way toward increasing the public’s understanding of some of the most secretive and significant actions taken in response to the recent financial crisis.

A recently published briefing paper by Arnold Kling at the Cato Institute lists some of the key questions that this audit should address, including:

  • Did the Federal Reserve believe that all of the institutions from which it purchased assets suffered only from temporary illiquidity, or did it believe that some of the institutions were insolvent?
  • Did the Fed consider alternative approaches that would have aimed at preserving only the most sound banks? What were the reasons for instead choosing the strategy of attempting to preserve so many troubled institutions?
  • What is the best estimate possible of the profits and losses to the taxpayers from the Fed’s new strategy of purchasing specific assets from specific institutions?
  • And ultimately, did the Fed action’s make the overall economic situation better than it would have been otherwise?

These questions must be addressed in order to fully understand the government’s approach to the bailout, and we urge Congress to remain diligent in its efforts to make the Fed’s activities more transparent to the American public.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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