While Congress’s spending has recently been the topic of much fiery debate, one big spender hasn’t received enough scrutiny—the Federal Reserve. However, that is changing, as Americans are becoming further aware of the Fed’s actions during the recent financial crisis and the extent to which the Fed doled out taxpayer money to financial institutions.
When the financial crisis hit, the Fed created or expanded a variety of financial support measures to avoid a total collapse of the financial system. But these actions highlighted just how little oversight, transparency, and accountability there was of the Fed. According to a Government Accountability Office report mandated by The Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fed spent over $16 trillion in government loans, purchases, and guarantees. Congress approved only a tiny fraction of this money through TARP.
The government and the public had no other knowledge of the Fed’s spending.
Now, courtesy of a Bloomberg article published on Sunday, we know that banks were able to secure a $13 billion windfall by investing the support funds that the Fed provided.
That’s not a bailout. That’s a handout.
The Fed has vigorously defended its secrecy, claiming that working behind closed doors is necessary to prevent panic in financial markets. According to the central bank, disclosing information about the Fed’s actions would create a stigma for the banks that took advantage of the measures, and cause investors and counterparties to shy away from doing business with them.
But these excuses just don’t hold water. When the Fed spends money, it creates a government liability, for which the public is ultimately on the hook. And when the public is on the hook, it must be done in the light of day.
Thankfully, much needed reforms of the Federal Reserve may soon be a reality. Senator Bernie Sanders recently convened a panel of nationally renowned economists to help draft legislation to reform the Fed. The panel includes esteemed Levy scholars James K. Galbraith, L. Randall Wray, and Stephanie A. Kelton.
With Senator Sanders’s efforts and these scholars’ assistance, we hope to move one step closer to a Federal Reserve that serves all Americans, not just Wall Street.