Ron Paul Defends His Plan for Fed Oversight
Defending himself against critics, Representative Ron Paul of Texas played down continuing concerns on Friday that his amendment to give Congress sweeping new oversight powers over the Federal Reserve would compromise the central bank’s political independence. He asserted that the Fed was not truly as independent as it would like the public to believe.
“There is already a tremendous amount of political pressure on the Fed,” Mr. Paul, a libertarian Republican, told DealBook. “The Federal Reserve Board chairmen have notoriously been sympathetic to the presidents who might be reappointing them and there has been evidence to show that.”
Mr. Paul also asserted that the Fed was beholden to pressures beyond the government from special interests, including Wall Street.
“It’s not like the banks and Goldman Sachs doesn’t have influence over the Fed,” Mr. Paul said. “Every time the Fed says it wants its independence, what they are really saying is we want to keep our secrets.”
The renewed attacks on Mr. Paul’s controversial amendment to provide audits of the Fed comes after the House Financial Services Committee voted Thursday night to insert the amendment into its version of the financial overhaul bill.
The amendment would allow the Government Accountability Office, the investigative arm of Congress, to have access to a vast array of information on the nation’s monetary policy currently out of their reach, including information on the Fed’s emergency lending programs, information on the financial bailouts, the Fed’s dealings with foreign central banks and the Fed’s decisions to drive down interest rates by intervening in bond markets.
Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, told DealBook that he voted against the amendment because he said he felt “it went a little bit too far.” But he noted that he could support it going forward if it did not dispel the “perception” that the Fed is independent.
“The problems with monetary policy is that perception plays a real role and I did worry that that could lead people inside America and also outside to be worried about the integrity of the monetary policy function,” Mr. Frank said. “If it turns out that the amendment does not cause these kind of concerns, then I would be fine with that.”
Meanwhile, other critics of Mr. Paul’s amendment contend that Congress is “pandering to public anger” and fear that the Fed would lose its ability to set interest rates, putting Congress in charge of this very important subset of monetary policy.
“Yesterday’s passage of the Paul amendment by the House Financial Services Committee is a dangerous move by this Congress to pander to the populist anger currently directed against our central bank, the Federal Reserve,” Senator Judd Gregg, Republican of New Hampshire, said in a statement. “Congress has demonstrated time and again its inability to manage the nation’s fiscal policy, illustrated by our staggering national debt in excess of $12 trillion, so how can anyone think that its involvement in monetary policy would be good for the country?”
Mr. Paul shot back at Mr. Gregg. “It’s not pandering, it’s listening,” Mr. Paul said. “The people are angry because they are finding out what the Fed is doing.”
One of the more controversial things the Fed has done during the crisis was to buy up billions of dollars’ worth of mortgage-backed securities from banks and government-sponsored entities. Since the Fed is shielded from oversight, Congress has little idea what the Fed bought or exactly how much it paid for the potentially toxic securities. Mr. Paul said he feared that the government could be paying full price for the securities, which could end up being worthless.
Mr. Paul also said the amendment specifically barred Congress from intervening in any aspect of monetary policy and that any audits of the Federal Reserve’s decisions to raise or lower interests rates would be made available to Congress on a six-month time lag.
The bill will be voted on by the committee at the end of the month and it will then go to the House floor for debate and a vote. The Senate, meanwhile, is considering its own financial overhaul bill. If those bills are approved, they would then have to be reconciled by both houses of Congress before going to the president.
– Cyrus Sanati