[Congressional Record (Bound Edition), Volume 158 (2012), Part 9]
[House]
[Pages 12004-12019]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              {time}  1510
                FEDERAL RESERVE TRANSPARENCY ACT OF 2012

  Mr. ISSA. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 459) to require a full audit of the Board of Governors of the 
Federal Reserve System and the Federal reserve banks by the Comptroller 
General of the United States before the end of 2012, and for other 
purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                                H.R. 459

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Federal Reserve Transparency 
     Act of 2012''.

     SEC. 2. AUDIT REFORM AND TRANSPARENCY FOR THE BOARD OF 
                   GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

       (a) In General.--Notwithstanding section 714 of title 31, 
     United States Code, or any other provision of law, an audit 
     of the Board of Governors of the Federal Reserve System and 
     the Federal reserve banks under subsection (b) of such 
     section 714 shall be completed within 12 months of the date 
     of enactment of this Act.
       (b) Report.--
       (1) In general.--A report on the audit required under 
     subsection (a) shall be submitted by the Comptroller General 
     to the Congress before the end of the 90-day period beginning 
     on the date on which such audit is completed and made 
     available to the Speaker of the House, the majority and 
     minority leaders of the House of Representatives, the 
     majority and minority leaders of the Senate, the Chairman and 
     Ranking Member of the committee and each subcommittee of 
     jurisdiction in the House of Representatives and the Senate, 
     and any other Member of Congress who requests it.
       (2) Contents.--The report under paragraph (1) shall include 
     a detailed description of the findings and conclusion of the 
     Comptroller General with respect to the audit that is the 
     subject of the report, together with such recommendations for 
     legislative or administrative action as the Comptroller 
     General may determine to be appropriate.
       (c) Repeal of Certain Limitations.--Subsection (b) of 
     section 714 of title 31, United States Code, is amended by 
     striking all after ``in writing.''.
       (d) Technical and Conforming Amendment.--Section 714 of 
     title 31, United States Code, is amended by striking 
     subsection (f).

     SEC. 3. AUDIT OF LOAN FILE REVIEWS REQUIRED BY ENFORCEMENT 
                   ACTIONS.

       (a) In General.--The Comptroller General of the United 
     States shall conduct an audit of the review of loan files of 
     homeowners in foreclosure

[[Page 12005]]

     in 2009 or 2010, required as part of the enforcement actions 
     taken by the Board of Governors of the Federal Reserve System 
     against supervised financial institutions.
       (b) Content of Audit.--The audit carried out pursuant to 
     subsection (a) shall consider, at a minimum--
       (1) the guidance given by the Board of Governors of the 
     Federal Reserve System to independent consultants retained by 
     the supervised financial institutions regarding the 
     procedures to be followed in conducting the file reviews;
       (2) the factors considered by independent consultants when 
     evaluating loan files;
       (3) the results obtained by the independent consultants 
     pursuant to those reviews;
       (4) the determinations made by the independent consultants 
     regarding the nature and extent of financial injury sustained 
     by each homeowner as well as the level and type of 
     remediation offered to each homeowner; and
       (5) the specific measures taken by the independent 
     consultants to verify, confirm, or rebut the assertions and 
     representations made by supervised financial institutions 
     regarding the contents of loan files and the extent of 
     financial injury to homeowners.
       (c) Report.--Not later than the end of the 6-month period 
     beginning on the date of the enactment of this Act, the 
     Comptroller General shall issue a report to the Congress 
     containing all findings and determinations made in carrying 
     out the audit required under subsection (a).

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
California (Mr. Issa) and the gentleman from Maryland (Mr. Cummings) 
each will control 20 minutes.
  The Chair recognizes the gentleman from California.


                             General Leave

  Mr. ISSA. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days within which to revise and extend their remarks 
and include extraneous materials on the bill under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from California?
  There was no objection.
  Mr. ISSA. I yield myself such time as I may consume.
  H.R. 459, the Federal Reserve Transparency Act, directs the GAO to 
conduct a full audit of the Federal Reserve. The Dodd-Frank legislation 
mandated a GAO audit of the Fed, but that audit, issued by the 
Government Accountability Office in July of 2011, focused solely on the 
issues concerning emergency credit facilities.
  GAO remains restricted, under the current law, from conducting a 
broader audit of the Fed that includes, for instance, a review of the 
Fed's monetary policy operations and its agreements with foreign 
governments and central banks. The bill remedies this situation by 
permitting GAO, the investigative arm of Congress, to conduct a 
nonpartisan audit that will review all of these transactions. The 
findings of the audit are to be reported to Congress.
  It is particularly appropriate that we consider this legislation at 
this time. While Congress should not manage or micromanage details of 
monetary policy, it needs to be able to conduct oversight of the Fed. 
The Fed was created by Congress to be a central bank, independent of 
the influence of the U.S. Treasury. It was never intended to, in fact, 
be independent of Congress or independent of the American people.
  In recent years, the Fed's extraordinary interventions into the 
economy and financial markets have led some to call into question its 
independence. We do not ask for an audit for that reason. We ask for an 
audit because the American people ultimately must be able to hold the 
Fed accountable; and to do so, they must know, at least in retrospect, 
what the Fed has done over these many years that it has been without an 
audit. That is why I support H.R. 459, a bipartisan bill with 273 other 
cosponsors.
  I urge my colleagues' support, and I reserve the balance of my time.


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore. Members are reminded not to traffic the well 
while another Member is under recognition.
  Mr. CUMMINGS. Mr. Speaker, I yield 2 minutes to the gentleman from 
Maryland (Mr. Hoyer).
  Mr. HOYER. I thank the gentleman for yielding.
  Mr. Speaker, when the sponsors of this bill talk about ``auditing'' 
the Federal Reserve, they don't mean a traditional audit. An outside, 
independent accounting firm already audits the Federal Reserve's annual 
financial statements, and GAO is already empowered to review the Fed's 
financial statements and a broad range of its functions.
  In fact, the Wall Street reform legislation Democrats passed last 
Congress expanded the types of audits GAO can conduct, as has been 
mentioned by Mr. Issa. So there is transparency and accountability when 
it comes to the Federal Reserve's finances and operations. However, 
this bill would, instead, jeopardize the Fed's independence by 
subjecting its decisions on interest rates and monetary policy to a GAO 
audit.
  The Fed, like every other major central bank in the world, is 
independent, and Congress has rightly insulated the Fed from short-term 
political pressures.
  I agree with Chairman Bernanke that congressional review of the Fed's 
monetary policy decisions would be a ``nightmare scenario,'' especially 
judging by the track record of this Congress when it comes to governing 
effectively and intervening in the courts and other areas. We don't 
have to look any further than the Congress unnecessarily taking the 
country to the brink of default last summer in a display of politics.
  All of us, Mr. Speaker, want transparency. All of us here want to 
make sure that the Federal Reserve is working to carry out the economic 
goals of the American people, which are maximum employment and price 
stability. But that's not what this bill is about. This bill increases 
the likelihood that the Fed will make decisions based on political 
rather than economic considerations, and that is not a recipe for sound 
monetary policy.
  I urge my colleagues to defeat this bill and preserve the 
independence of the Fed so it can keep our currency stable and 
cultivate the best conditions for our economy to grow and create jobs.
  Unfortunately, Mr. Speaker, we, in Congress, have shown too 
frequently our inability in a political environment to make tough 
choices. That failure has led us, in part, to where we are today. I 
urge my colleagues to defeat this unwarranted, unjustified, and 
dangerous legislation.
  Mr. ISSA. Mr. Speaker, it's now my honor to yield 2 minutes to the 
gentleman from Texas (Mr. Paul), the author of this bill and the man 
who understands that not knowing should never be an answer.
  Mr. PAUL. I thank the gentleman for yielding.
  I rise, obviously, in strong support of this legislation. I don't 
know how anybody could be against transparency.
  They want secrecy, especially when the secrecy is to protect 
individuals who deal in trillions of dollars, much bigger than what the 
Congress does. And these trillions of dollars bail out all the wealthy, 
rich people; the banks and the big corporations; international, 
overseas banks; bailing out Europe; dealing with central banks around 
Europe and different places.
  And to say that we should have secrecy and to say that it's political 
to have transparency, well, it's very political when you have a Federal 
Reserve that can bail out one company and not another company. That's 
pretty political.
  I think when people talk about independence and having this privacy 
of the central bank means they want secrecy, and secrecy is not good. 
We should have privacy for the individual, but we should have openness 
of government all the time, and we've drifted a long way from that.
  The bill essentially removes the prohibitions against a full audit. 
To audit, we should know what kind of transactions there are. We should 
know about the deals that they made when they were fixing the price of 
LIBOR. These are the kinds of things that have gone on for years that 
we have no access to.
  Congress has this responsibility. We are reneging on our 
responsibility. We have had the responsibility and we have not done it, 
so it is up to us to reassert ourselves.
  The Constitution is very clear who has the responsibility, but the 
law conflicts with the Constitution. The law

[[Page 12006]]

comes along and says the Congress can't do it. Well, you can't change 
the Constitution and prohibit the Congress from finding out what's 
going on by writing a law, and this is what has happened.
  So it is time that we repeal this prohibition against a full audit of 
the Federal Reserve. We deserve it. The American people deserve it. The 
American people know about it and understand it, and that's what 
they're asking for. They're sick and tired of what happened in the 
bailout, where the wealthy got bailed out and the poor lost their jobs 
and they lost their homes.
  Mr. CUMMINGS. I yield 4 minutes to the distinguished gentleman from 
Massachusetts (Mr. Frank), the ranking member of the Financial Services 
Committee.
  Mr. FRANK of Massachusetts. Mr. Speaker, I think this is a bad idea, 
and I am somewhat confused.
  By the way, we will be debating tomorrow a bill which restricts 
rulemaking, and it exempts the Federal Reserve, as I read it. So we're 
kind of on again/off again about the Federal Reserve. It seems to me 
what we're talking about is taking some fake punches at the Federal 
Reserve but not doing anything serious.
  My Republican colleagues brought up a reconciliation bill that was 
going to subject the Consumer Bureau to appropriations.

                              {time}  1520

  So I offered an amendment to subject the Federal Reserve to 
appropriations. That was voted down. So we're not going to restrict 
their rulemaking. We're not going to subject them to appropriations, 
even though that's being done elsewhere. We're going to audit them, 
which is a way to look tough without really being tough.
  Mr. ISSA. Will the gentleman yield?
  Mr. FRANK of Massachusetts. I yield to the gentleman from California.
  Mr. ISSA. I thank the gentleman. Would you suggest that we should do 
both of those?
  Mr. FRANK of Massachusetts. No. I reclaim my time and say we should 
do none of them. I was saying I have a consistent position. I don't 
think we should do any of them. What I'm saying is, people who get up 
there and beat their chest about how tough they are and they're not 
afraid of the Federal Reserve but exempt it from the great rulemaking 
bill, and subject the Consumer Bureau--that terrible threat to the 
well-being of Americans--to the appropriations process, but let the 
Federal Reserve, which spends about 150 times as much, go free--I am 
inclined to doubt their seriousness. Not their purity, that would be a 
violation of the rules, but their seriousness. This is a way to shake 
your fist at that big, bad Fed. And it's not a good way.
  We hear a lot about uncertainty. Remember, the Federal Reserve is now 
subject to a complete openness about all of its transactions with 
private companies. We did that last year. The gentleman from Texas had 
a major role in that. When the Federal Reserve deals with any other 
institution, we know what it does. We don't know it necessarily the 
same day. There were these predictions about what terrible things were 
going to happen when the Federal Reserve did this and that. They 
haven't come true. Maybe they will some day, but we will know it.
  This makes this exception: it says that we will audit the decisions 
about monetary policy. It says that members who vote on what the 
interest rate should be will now be audited. They will be subject to 
being quizzed about why they did that. Now, I will tell my Democratic 
friends, understand that one part of this problem is the objection on 
the part of the Republican Party to the fact that our Federal Reserve, 
unusual among central banks, has a dual mandate. They are charged under 
our statute to be concerned about inflation and about unemployment.
  Now, the Republicans have an agenda they're keeping on low key until 
next year. They have a bill, but they won't act on it yet. But they 
would like to strip that part of the mandate. They would like the 
Federal Reserve to be only involved in inflation. They don't like the 
notion that the Federal Reserve deals with unemployment, and this is a 
way that, if it were ever to become law, and no one thinks it will--
this is a, Look how tough we are. We are going to wave our fists at the 
Fed. But it would be a way to kind of put pressure on members of the 
Open Market Committee and see, were you worried about unemployment when 
you did this? That's the audit. This has nothing to do with how they 
spend their money. It has nothing to do with whom they contract. That 
is what people usually think about an audit. It doesn't have anything 
to do with whether they are efficient or not. It is an ideological 
agenda by a group of people who didn't like what the Federal Reserve 
was doing--under, by the way, George Bush, there was reference to the 
bailouts, which were, of course, under the Bush administration. One of 
the things that we did, by the way, in our bill 2 years ago--and all my 
Republican colleagues voted against the bill--was to take away from the 
Federal Reserve the power they used--under President Bush--to give/lend 
$85 billion to AIG. We rescinded that. I don't think Mr. Bernanke, a 
Bush appointee, was doing the wrong thing necessarily, but we took back 
that power.
  So this is partly a show because on the two serious efforts to 
curtail the Fed's powers, my Republican colleagues aren't there. But 
secondly--and as I said, I'm consistent--I don't think that we should 
do any of these things. I think what we did with regard to openness 
makes sense. I'm not pretending to be tough when I'm not.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. CUMMINGS. I yield the gentleman 1 additional minute.
  Mr. FRANK of Massachusetts. But what it will do is destabilize. We 
have worries about expectations. There is a fear that we will be too 
inflationary or that we won't grow enough. People on Wall Street are 
not as sophisticated as some people think. I don't mean they're not 
sophisticated about their own business, as we know, but they will read 
this and take it more seriously than the Members here do who think it 
might eventually become law, and it will destabilize some of the 
financial system. They will see it as political interference not with 
the contracting procedures, not with the budget, not with how many cars 
they have, but with how they decide on interest rates. And the 
perception that the Congress is going to politicize the way in which 
interest rates are set will in itself have a destabilizing effect.
  And as I said, nobody here thinks this will ever become law. But 
there is this fear on the part of others who don't know that that will 
translate into precisely the kind of uncertainty, precisely the kind of 
unsettling on investments that my Republican colleagues pretend to 
fear, and it will also send them the message, stop worrying about 
unemployment.
  Mr. ISSA. As I introduced my good friend and leader on this issue, 
Mr. Chaffetz, I might note that when the word ``Democrat'' and 
``Republican'' are used in this Hall, hopefully when there are 45 
Democratic Members on this bill as cosponsors, we would recognize this 
is a bipartisan bill.
  I now yield 2 minutes to the gentleman from Utah (Mr. Chaffetz).
  Mr. CHAFFETZ. I thank the chairman.
  I also want to appreciate and congratulate Dr. Ron Paul for his 
tireless pursuit of this openness and transparency. Without his 
leadership, we wouldn't be at this point today, and I applaud him and 
thank him for that.
  Some would say that the Fed is already audited, but there are some 
key points where it is not. These include transactions with foreign 
central banks, discussion and actions on monetary policy, and 
transactions made under the direction of the Federal Open Market 
Committee.
  If we are truly about openness and transparency in this Nation, which 
distinguishes us above and beyond so many others, we deserve and need 
to know this information.
  We need also understand the imperative that is before us because the 
Federal Reserve balance sheet has exploded in recent years. In fact, 
since

[[Page 12007]]

2008, it has literally tripled. It's gone from $908 billion on its 
balance sheet to over $2.8 trillion, nearly a 33 percent annualized 
increase since January 2008.
  The Federal Reserve ownership of Treasuries has also increased 
substantially in recent years, having more than doubled from January of 
2008 to January of 2012, where it went from $741 billion to $1.66 
trillion.
  Let's understand also that in fiscal year 2011, the Federal Reserve 
purchased 76 percent of new Treasuries. Certainly the American people 
and this Congress deserves more openness, transparency, and at the very 
least an audit. I encourage my colleagues on both sides of the aisle to 
support this commonsense piece of legislation, and again congratulate 
Dr. Paul, and continue to hope for his pursuit of this issue.
  Mr. CUMMINGS. I yield 2 minutes to the gentlewoman from New York 
(Mrs. Maloney).
  Mrs. MALONEY. This is an absolute terrible idea. Although I am in 
total agreement with Mr. Paul that transparency is a virtue, I also 
believe that the Federal Reserve must be free of any political 
influence, and I'm afraid this bill opens the door for precisely that 
to happen. I don't believe there is anyone in this Chamber that thinks 
that what the process needs is more politics.
  Make no mistake, I agree that maximum transparency is necessary and 
desirable, and that's precisely why we included numerous transparency 
requirements in the financial reform bill, as well as numerous audit 
requirements. We authorized the GAO to audit the Fed's emergency 
lending facility. We authorized the GAO to audit any special facility 
created within the Fed. And we required the Fed to issue an assessment 
2 years after institutions were granted access to the Fed's discount 
window.
  We crafted those measures and more in a way that ensures transparency 
but still preserves the independence of the Federal Reserve in its 
decision-making process in the critical area of monetary policy. But 
this bill, as it now stands, would provide information without a proper 
context. That could have unintended consequences and have totally 
unwarranted effects on consumer confidence in our financial 
institutions.
  If the individual members of the Open Markets Committee know that 
each one of their decisions are subject to potential political 
pressure, it would significantly alter that decision-making process. An 
open door to the Federal Open Markets Committee would invite political 
pressures. And having decisions that are driven by politics and polling 
data is not the path to sound monetary policy.
  Decisions about monetary policy should never be based on the raw 
political needs of the moment but instead should always be based 
strictly on objective economic considerations and guided by the twin 
mandates of low inflation and full employment. The unintended 
consequences of this bill would be to open the Federal Reserve to 
political influence, and that would have a negative impact on the Fed's 
independence and its ability to produce sound economic policy. I urge a 
strong bipartisan ``no'' vote.

                              {time}  1530

  Mr. ISSA. It is now my honor to yield 1 minute to the gentleman from 
Texas (Mr. Farenthold).
  Mr. FARENTHOLD. Mr. Speaker, the Constitution grants us the power to 
coin money and regulate the value thereof, and we've delegated this to 
the Fed. Unfortunately, we've tied our hands behind our back with 
respect to seeing what they're doing, and it's our duty to conduct 
oversight. A moment ago, Mr. Frank said the audit was just fist 
pounding and chest pounding. I disagree. It's the first step. It is our 
doing our homework to determine what needs to be done to reform the 
Fed.
  Chairman Bernanke said this bill would be a ``nightmare scenario'' of 
political meddling in monetary affairs. I disagree. I think the current 
situation is a nightmare scenario in unaccountable government. As 
Justice Brandeis said, ``Sunshine is always the best disinfectant.'' As 
a member of the Oversight and Government Reform Committee, we demand 
transparency from agencies like the GSA, the TSA, and other Fed 
agencies.
  I join my friend and neighbor in Congress, Dr. Paul, in demanding for 
the American people that sunshine be shined into the Fed and this audit 
be conducted. I urge my colleagues to support this bill because the 
American people have a right to know.
  Mr. CUMMINGS. I yield 1 minute to the gentleman from Massachusetts 
(Mr. Frank).
  Mr. FRANK of Massachusetts. Mr. Speaker, to illustrate the 
misconceptions about this bill, let's refer to what the gentleman from 
Utah (Mr. Chaffetz) had to say. He said 76 percent of the purchasers of 
this and that. Well, if they were so nontransparent, I don't know how 
he would know that. He didn't have a subpoena. But the fact is, yes, he 
knows that because of the transparency we've already built in. But all 
the more important, the details, the specifics of every one of those 
transactions are already public.
  This isn't about those transactions or about with whom they were done 
and under what time period. It's about the motives of the people 
setting monetary policy.
  And let me address the Constitution. Yes, it is true that the 
Constitution gives us the power to do this. The Constitution gives us a 
lot of power. It gives us power to declare war on Canada. It gives us 
the power to do a lot of things. Wise people pick and choose which 
powers they use.
  But this is not about getting more information about their 
transactions. All of that is out there. This is an effort to give 
politicians, a wonderful group of people of which I am one, more direct 
involvement in the actual decisions on setting of interest rates than 
is good for the economy.
  Mr. ISSA. It is now my honor to yield 1 minute to the gentleman from 
Michigan (Mr. Amash).
  Mr. AMASH. I would like to thank Chairman Issa and thank and 
congratulate Dr. Ron Paul for his tireless work on this issue for many 
decades.
  Mr. Speaker, what is the Federal Reserve? I think even many Members 
of this body couldn't answer that question. And yet Congress has 
delegated its constitutional authority to this committee of bankers and 
Presidential appointees. To no institution in our country's history has 
Congress given so much power while knowing so little.
  As our central bank, we've entrusted the Federal Reserve with 
managing inflation. That means the Fed can change the value of 
Americans' life savings, their retirement accounts and their mortgages. 
Lately, the Fed has taken on the role of ``lender of last resort.'' It 
has made unprecedented market interventions, promising billions of 
dollars to the country's largest financial institutions. When investors 
wouldn't buy mortgages, the Fed did. When creditors became wary of 
Congress' spending binge, the Feds stepped in.
  Years ago, Congress enacted an audit statute, but it prevents an 
audit of monetary policy. The government's accountants understandably 
were outraged, saying they couldn't ``satisfactorily audit the Federal 
Reserve system without authority to examine the Fed's largest assets.''
  Congress should be wary of all types of central planning. We should 
be especially vigilant against unaccountable groups that profoundly 
affect Americans' lives and liberty.
  Pass this bill, and let's audit the Fed.
  Mr. CUMMINGS. Mr. Speaker, I yield 2 minutes to the gentleman from 
North Carolina (Mr. Watt).
  Mr. WATT. I thank the gentleman.
  Let me say, first, that this bill is not about sunshine and it's not 
about transparency. It is about dissatisfaction that some individuals 
have with the mandate that Congress has given to the Federal Reserve.
  The gentleman who just spoke is absolutely right; They are supposed 
to deal with inflation. That's what we told them to do in their 
mandate. They're supposed to deal with unemployment. That's what we 
told them to do in the mandate we gave.
  And some people over there are dissatisfied with the fact that--they 
don't

[[Page 12008]]

want them to deal with unemployment. They don't want them to try to 
adjust and make changes that will be beneficial to our economy. And if 
they don't want that, they ought to just introduce a bill that repeals 
the mandate that we gave to them.
  Don't come and say that we are talking about sunshine and 
transparency.
  Every time I turn on the television now, I hear the Federal Reserve, 
Chairman Bernanke and members of the Federal Reserve, talking about how 
the economy is going. That is not lack of sunshine and lack of 
information. I thought we had dealt with this when Mr. Paul was the 
ranking member of the subcommittee and I was the chairman.
  Mr. Paul's problem is he doesn't like the Federal Reserve. He is 
avowedly in favor of doing away with the Federal Reserve. That's an 
honest position. But don't come in and try to cloak it in the guise of 
this agency is not transparent or it lacks sunshine. If you don't like 
the mandate that they have, then have the guts to stand up and 
introduce a bill that says that we are doing away with the Federal 
Reserve.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. CUMMINGS. I yield the gentleman 1 additional minute.
  Mr. WATT. If you think we are in trouble now, if you get the politics 
and the Congress involved in transactions with foreign governments and 
the decisions about how we get ourselves out of this unemployment 
situation, if we have some answers about how to get out of 
unemployment, then I would assume we would come forward with them. And 
nobody on this floor of this Congress has done anything to take up an 
unemployment bill. So I'm glad we have the Federal Reserve over there 
at least trying to figure out how to make some adjustments in our 
economy that will deal with unemployment.
  The last thing I want is for this Congress to be second-guessing--or 
an auditor that is not elected by anybody to be second-guessing--the 
decisions of the people who are on the Federal Reserve. An auditor 
might be a good accountant, he can count, but I want somebody on the 
Federal Reserve, and hopefully it would be nice to have some people in 
Congress who can make some decisions about how to deal with 
unemployment.
  Mr. ISSA. Mr. Speaker, the rules of the House prohibit going after 
someone's motivation. I'm very concerned that a bill that, in a 
substantially similar form, was placed into Dodd-Frank by then-Chairman 
Barney Frank is now being characterized as somehow ill-intended and 
mischievous activity by the proponent. I would trust that that is not 
the intent of the speakers on behalf of that side of the aisle about 
this bipartisan bill. It is virtually identical to the language that 
Barney Frank put into Dodd-Frank.
  Mr. WATT. Will the gentleman yield?
  Mr. ISSA. I yield to the gentleman from North Carolina.
  Mr. WATT. I just want to be clear that Mr. Frank and I both voted 
against the bill that you're talking about, so don't try to make it 
sound like it's Mr. Frank's and my bill. We voted against the bill. 
This is Ron Paul's bill. We thought it was a terrible idea then, and we 
think it's a terrible idea now.
  Mr. ISSA. Reclaiming my time, I would like to yield 15 seconds to the 
gentleman from Texas, the author of the bill.
  Mr. PAUL. Did you vote against Dodd-Frank? Because it was in Dodd-
Frank. It wasn't a separate bill. Maybe on a separate vote you might 
have done it, but it was in Dodd-Frank.
  Mr. ISSA. I now yield 1 minute to the gentleman from Montana (Mr. 
Rehberg).
  Mr. REHBERG. Thank you, Mr. Issa, and I especially thank you, Dr. 
Paul.
  Tomorrow, the House of Representatives will uphold our constitutional 
duty and vote to pull back the secretive curtain of the Federal 
Reserve. The American people have a right to know. It's an important 
step in openness and government transparency that's long overdue.
  Just a few years ago, the Senate rejected an effort to add this 
strong audit language to the Dodd-Frank bill, but times are changing. 
As our economy struggles and job creation lags, it's more important 
than ever to look under the hood of the Federal Reserve. We need to 
find out exactly what they are doing and why. That way, we can 
determine if the Fed is actually hurting our economy and discouraging 
job growth.
  In a democracy, no government body should be allowed to hide behind a 
curtain of secrecy. That's why I stand strongly behind this 
legislation.

                              {time}  1540


Moment of Silence in Memory of Officer Jacob J. Chestnut and Detective 
                             John M. Gibson

  The SPEAKER pro tempore. Pursuant to the Chair's announcement of 
earlier today, the House will now observe a moment of silence in memory 
of Officer Jacob J. Chestnut and Detective John M. Gibson.
  Will all present please rise in observance of a moment of silence.
  Mr. CUMMINGS. Mr. Speaker, I yield 30 seconds to the gentleman from 
Massachusetts (Mr. Frank).
  Mr. FRANK of Massachusetts. Mr. Speaker, I'm glad that the Committee 
on Government and Oversight isn't the official House historian. In 
fact, there was a motion to include language like this offered to the 
financial reform bill. I voted ``no,'' as did Mr. Watt. It was included 
in the bill. It's true, I voted for the bill. Of course, the gentleman 
from Texas voted against the bill. So if your vote on the whole bill is 
taken as an account of what you feel, he was against it.
  But when it went to conference, it was not in the Senate bill--which 
was the text of the conference--so it did not come up, and no 
Republican conferee offered it as an amendment. That is, in the 
conference, that language which I and the gentleman from North Carolina 
voted against was not offered by any Member of the conference, Democrat 
or Republican.
  Mr. ISSA. History records that Democrats broadly voted for it when it 
was voted out of this body. Nothing more need be said.
  With that, I yield 1 minute to the gentlelady from Tennessee (Mrs. 
Blackburn).
  Mrs. BLACKBURN. I thank the gentleman from California for the time. 
And I want to commend the gentleman from Texas (Mr. Paul) for his 
excellent work on this issue.
  Recently, I had a constituent say to me in a townhall meeting they 
thought it was time for Congress to start putting some mandates on the 
Federal Government. They're tired of government mandates on them. Why 
don't we mandate, why don't we hold them accountable?
  This is a piece of legislation that does exactly that. It requires 
the GAO to conduct a full audit of the Board of Governors of the 
Federal Reserve System and of the Federal Reserve banks by the 
Comptroller General before the end of the year. That is significant. A 
timeline to do a job, to be held accountable to the people of this 
great Nation for how they spend their time, their money, the decisions 
they make that affect us.
  It is imperative that we get this economy back on track. The actions 
that we will vote on today are part of that, having a Federal Reserve 
that is accountable--accountable to our constituents, accountable to 
the people of this Nation. I commend the gentleman for a move toward 
transparency and accountability.
  Mr. CUMMINGS. Mr. Speaker, may I inquire as to how much time we have.
  The SPEAKER pro tempore. The gentleman from Maryland has 6\1/2\ 
minutes remaining. The gentleman from California has 9\1/4\ minutes 
remaining.
  Mr. CUMMINGS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise today in opposition to H.R. 459, which passed out 
of the Oversight Committee without even a single hearing and without 
testimony from any Federal Reserve officials.
  Let me be clear: the Government Accountability Office has had the 
authority to audit the Federal Reserve's books for three decades. In 
2010, the Dodd-Frank Act expanded the types of audits GAO conducts of 
the Federal Reserve, as well as the data the Fed must

[[Page 12009]]

disclose to the public. For example, Dodd-Frank required the GAO to 
audit the emergency financial assistance provided during the financial 
crisis.
  The act also opens discount window operations and open market 
operations to audit so GAO can assess the operational integrity, 
collateral policies, fairness, and use of third-party contractors. And 
Dodd-Frank requires the Federal Reserve to release information 
regarding borrowers and counterparties participating in discount-
lending programs and open market operations. Mr. Speaker, as a conferee 
who helped craft the final Dodd-Frank legislation, I supported all of 
these provisions.
  I believe other areas of the Federal Reserve's operations are also 
ripe for audit. During the committee's consideration of this 
legislation, I offered an amendment that would require GAO to perform 
an audit of the independent foreclosure reviews currently being 
conducted by the Federal Reserve and the Office of the Comptroller of 
the Currency.
  Fourteen mortgage servicers have been required to establish a process 
under which borrowers can request an independent review of their loan 
histories. But at the end of May, only 200,000 out of about 4.4 million 
eligible borrowers had requested an independent review of their 
foreclosure cases. We need to understand whether the design of the 
program has limited the number of borrowers who have sought reviews of 
their cases.
  Further, it is unclear how the types and amounts of remediation are 
being determined. This is precisely the type of issue that should be 
reviewed by the GAO. Certainly, the public has a right and the Congress 
has a responsibility to know and understand the transactions and 
enforcement actions undertaken by the Nation's central bank. However, 
when Congress established the Fed in 1913, it understood that 
independence from political interference was critical to the bank's 
ability to fulfill its monetary policy responsibilities.
  The Dodd-Frank Act was carefully crafted to expand transparency while 
preserving the protections that ensure the independence of the Federal 
Reserve's internal deliberations on monetary policy matters. The Board 
of Governors of the Federal Reserve must be able to pursue the policies 
it considers most responsive to our Nation's current economic 
conditions and most likely to fulfill its dual mandate of promoting 
maximum employment and stable prices.
  We should not allow GAO examinations to be the back door through 
which politics intrude on monetary policy--which is what this 
legislation would allow. Opening the Federal Reserve's internal policy 
deliberations to GAO review could influence how such deliberations are 
conducted and potentially the policies that are chosen, thus degrading 
the Fed's independence.
  Last week, the Chairman of the Federal Reserve, Mr. Bernanke, 
described the potential impact of this bill to the Financial Services 
Committee. He said:

       The nightmare scenario I have is one in which some future 
     Fed Chairman would decide and say to raise the Federal funds 
     rate to 25 basis points and somebody would say, I don't like 
     that decision. I want the GAO to go in and get all the 
     records, get all the transcripts, get all the preparatory 
     materials and give us an independent opinion whether or not 
     that was the right decision.

  I share Chairman Bernanke's concern. For that reason, during the 
markup of this legislation in the Oversight Committee, I offered an 
amendment that would have retained the protections for the Board of 
Governors' internal monetary policy deliberations to ensure that the 
audit required by this legislation did not intrude on the Federal 
Reserve's independence. I continue to believe this provision is needed 
to ensure this bill does not prohibit the ability of the Federal 
Reserve to implement monetary policies to strengthen our Nation's 
economy as it has done repeatedly throughout the recent financial 
crisis.
  I reserve the balance of my time.
  Mr. ISSA. Mr. Speaker, can I inquire how much time we both have 
remaining, please.
  The SPEAKER pro tempore. The gentleman from California has 9\1/4\ 
minutes remaining. The gentleman from Maryland has 2 minutes remaining.
  Mr. ISSA. I now yield 1 minute to the gentlelady from Kansas (Ms. 
Jenkins).
  Ms. JENKINS. I thank the gentleman for yielding, and I thank Dr. Paul 
for his leadership on this very important issue.
  Mr. Speaker, the Federal Reserve lent out $16 trillion during the 
fiscal crisis. That's larger than the entire U.S. economy--or worse, 
our Federal debt. Trillions of taxpayer dollars, and we have very 
little understanding of where it went.
  Congress holds the purse, but we have no oversight over how the Fed 
manages the funds. This is why I've cosponsored a bipartisan effort to 
audit the Fed in full. It's our responsibility.
  Current monetary policy audits of the Fed are insufficient. Most Fed 
operations consist of transactions with foreign central banks, and yet 
they are exempt from review. When corruption is suspected, a common 
refrain is: follow the money. With the historic sovereign debt crisis 
brewing in Europe, we must look closely at our own balance sheet. We 
must follow the money.
  As a CPA, I know we need more transparency in Washington. It should 
start with the Federal Reserve.

                              {time}  1550

  Mr. CUMMINGS. I yield 1 minute to the gentleman from Ohio (Mr. 
Kucinich).
  Mr. KUCINICH. I would like to include in the record of this debate an 
article about the Fed's policy model sacrificing its maximum employment 
mandate and targeting 5 to 6 percent as unemployment.

   Speech by Janet L. Yellen, Vice Chair, Board of Governors of the 
  Federal Reserve System at the Boston Economic Club Dinner, Boston, 
                       Massachusetts June 6, 2012


                    Perspectives on Monetary Policy

       Good evening. I'm honored to have the opportunity to 
     address the Boston Economic Club and I'm grateful to Chip 
     Case for inviting me to speak to you tonight. As most of you 
     probably know, Chip was one of the first economists to 
     document worrisome signs of a housing bubble in parts of the 
     United States. After sounding an early alarm in 2003, Chip 
     watched the bubble grow and was prescient in anticipating the 
     very serious toll that its unwinding would impose on the 
     economy. Chip recognized that declining house prices would 
     affect not just residential construction but also consumer 
     spending, the ability of households to borrow, and the health 
     of the financial system. In light of these pervasive 
     linkages, the repeat sales house price index that bears 
     Chip's name is one of the most closely watched of all U.S. 
     economic indicators. Indeed, as I will discuss this evening, 
     prolonged weakness in the housing sector remains one of 
     several serious headwinds facing the U.S. economy. Given 
     these headwinds, I believe that a highly accommodative 
     monetary policy will be needed for quite some time to help 
     the economy mend. Before continuing, let me emphasize that my 
     remarks reflect my own views and not necessarily those of 
     others in the Federal Reserve System.


                  Economic Conditions and the Outlook

       In my remarks tonight, I will describe my perspective on 
     monetary policy. To begin, however, I'll highlight some of 
     the current conditions and key features of the economic 
     outlook that shape my views. To anticipate the main points, 
     the economy appears to be expanding at a moderate pace. The 
     unemployment rate is almost 1 percentage point lower than it 
     was a year ago, but we are still far from full employment. 
     Looking ahead, I anticipate that significant headwinds will 
     continue to restrain the pace of the recovery so that the 
     remaining employment gap is likely to close only slowly. At 
     the same time, inflation (abstracting from the transitory 
     effects of movements in oil prices) has been running near 2 
     percent over the past two years, and I expect it to remain at 
     or below the Federal Open Market Committee's (the FOMC's) 2 
     percent objective for the foreseeable future. As always, 
     considerable uncertainty attends the outlook for both growth 
     and inflation; events could prove either more positive or 
     negative than what I see as the most likely outcome. That 
     said, as I will explain, I consider the balance of risks to 
     be tilted toward a weaker economy.
       Starting with the labor market, conditions have gradually 
     improved over the past year, albeit at an uneven pace. 
     Average monthly payroll gains picked up from about 145,000 in 
     the second half of 2011 to 225,000 during the first quarter 
     of this year. However, these gains fell back to around 75,000 
     a month in April and May. The deceleration of payroll 
     employment from the first to the second quarter was probably 
     exacerbated by some combination of seasonal adjustment 
     difficulties and an unusually mild winter that likely

[[Page 12010]]

     boosted employment growth earlier in the year. Payback for 
     that earlier strength probably accounts for some of the 
     weakness we've seen recently. Smoothing through these 
     fluctuations, the average pace of job creation for the year 
     to date, as well as recent unemployment benefit claims data 
     and other indicators, appear to be consistent with an economy 
     expanding at only a moderate rate, close to its potential.
       Such modest growth would imply little additional progress 
     in the near term in improving labor market conditions, which 
     remain very weak. Currently, the unemployment rate stands 
     around 3 percentage points above where it was at the onset of 
     the recession--a figure that is stark enough as it is, but 
     does not even take account of the millions more who have left 
     the labor force or who would have joined under more normal 
     circumstances in the past four years. All told, only about 
     half of the collapse in private payroll employment in 2008 
     and 2009 has been reversed. A critical question for monetary 
     policy is the extent to which these numbers reflect a 
     shortfall from full employment versus a rise in structural 
     unemployment. While the magnitude of structural unemployment 
     is uncertain, I read the evidence as suggesting that the bulk 
     of the rise during the recession was cyclical, not structural 
     in nature.
       Consider figure 1, which presents three indicators of labor 
     market slack. The black solid line is the unemployment gap, 
     defined as the difference between the actual unemployment 
     rate and the Congressional Budget Office (CBO) estimate of 
     the rate consistent with inflation remaining stable over 
     time. The red dashed line is an index of the difficulty 
     households perceive in finding jobs, based on results from a 
     survey conducted by the Conference Board. And the red dotted 
     line is an index of firms' ability to fill jobs, based on a 
     survey conducted by the National Federation of Independent 
     Business. All three measures show similar cyclical movements 
     over the past 20 years, and all now stand at very high 
     levels. This similarity runs counter to claims that the CBO's 
     and other estimates of the unemployment gap overstate the 
     true amount of slack by placing insufficient weight on 
     structural explanations, such as a reduced efficiency of 
     matching workers to jobs, for the rise in unemployment since 
     2007. If that were the case, why would firms now find it so 
     easy to fill positions? Other evidence also points to the 
     dominant role of cyclical forces in the recent rise in 
     unemployment: job losses have been widespread, rather than 
     being concentrated in the construction and financial sectors, 
     and the co-movement of job vacancies and unemployment over 
     the past few years does not appear to be unusual.
       As I mentioned, I expect several factors to restrain the 
     pace of the recovery and the corresponding improvement in the 
     labor market going forward. The housing sector remains a 
     source of very significant headwinds. Housing has typically 
     been a driver of economic recoveries, and we have seen some 
     modest improvement recently, but continued uncertainties over 
     the direction of house prices, and very restricted mortgage 
     credit availability for all but the most creditworthy buyers, 
     will likely weigh on housing demand for some time to come. 
     When housing demand does pick up more noticeably, the huge 
     overhang of both unoccupied dwellings and homes in the 
     foreclosure pipeline will likely allow a good deal of that 
     demand to be met for a time without a sizeable expansion in 
     homebuilding. Moreover, the enormous toll on household wealth 
     resulting from the collapse of house prices--almost a 35 
     percent decline from its 2006 peak, according to the Case-
     Shiller index--imposes ongoing restraint on consumer 
     spending, and the loss of home equity has impaired many 
     households' ability to borrow.
       A second headwind that will likely become more important 
     over coming months relates to fiscal policy. At the federal 
     level, stimulus-related policies are scheduled to wind down, 
     while both defense and nondefense purchases are expected to 
     decline in inflation-adjusted terms over the next several 
     years. Toward the end of this year, important decisions 
     regarding the extension of current federal tax and budget 
     policies loom. I will return to the associated uncertainties 
     and their potentially detrimental effects later.
       A third factor weighing on the outlook is the likely 
     sluggish pace of economic growth abroad. Strains in global 
     financial markets have resurfaced in recent months, 
     reflecting renewed uncertainty about the resolution of the 
     European situation. Risk premiums on sovereign debt and other 
     securities have risen again in many European countries, while 
     European banks continue to face pressure to shrink their 
     balance sheets. Even without a further intensification of 
     stresses, the slowdown in economic activity in Europe will 
     likely hold back U.S. export growth. Moreover, the perceived 
     risks surrounding the European situation are already having a 
     meaningful effect on financial conditions here in the United 
     States, further weighing on the prospects for U.S. growth.
       Given these formidable challenges, most private sector 
     forecasters expect only gradual improvement in the labor 
     market and I share their view. Figure 2 shows the 
     unemployment rate together with the median forecast from last 
     month's Survey of Professional Forecasters (SPF), the dashed 
     blue line. The figure also shows the central tendency of the 
     unemployment projections that my FOMC colleagues and I made 
     at our April meeting: Those projections reflect our 
     assessments of the economic outlook given our own individual 
     judgements about the appropriate path of monetary policy. 
     Included in the figure as well is the central tendency of 
     FOMC participants' estimates of the longer-run normal 
     unemployment rate, which ranges from 5.2 percent to 6 
     percent. Like private forecasters, most FOMC participants 
     expect the unemployment rate to remain well above its longer-
     run normal value over the next several years.
       Of course, considerable uncertainty attends this outlook: 
     The shaded area provides an estimate of the 70 percent 
     confidence interval for the future path of the unemployment 
     rate based on historical experience and model simulations. 
     Its width suggests that these projections could be quite far 
     off, in either direction. Nevertheless, the figure shows that 
     labor market slack at present is so large that even a very 
     large and favorable forecast error would not change the 
     conclusion that slack will likely remain substantial for 
     quite some time.
       Turning to inflation, figure 3 summarizes private and FOMC 
     forecasts. Overall consumer price inflation has fluctuated 
     quite a bit in recent years, largely reflecting movements in 
     prices for oil and other commodities. In early 2011 and again 
     earlier this year, prices of crude oil, and thus of gasoline, 
     rose noticeably. Smoothing through these fluctuations, 
     inflation as measured by the price index for personal 
     consumption expenditures (PCE) averaged near 2 percent over 
     the past two years. In recent weeks, however, oil and 
     gasoline prices have moderated and are now showing through to 
     the headline inflation figures. Looking ahead, most FOMC 
     participants at the time of our April meeting expected 
     inflation to be at, or a bit below, our long-run objective of 
     2 percent through 2014; private forecasters on average also 
     expect inflation to be close to 2 percent. As with 
     unemployment, uncertainty around the inflation projection is 
     substantial.
       In the view of some observers; the stability of inflation 
     in the face of high unemployment in recent years constitutes 
     evidence that much of the remaining unemployment is 
     structural and not cyclical. They reason that if there were 
     truly substantial slack in the labor market, simple 
     accelerationist ``Phillips curve'' models would predict more 
     noticeable downward pressure on inflation. However, 
     substantial cross-country evidence suggests that, in low-
     inflation environments, inflation is notably less responsive 
     to downward pressure from labor market slack than it is when 
     inflation is elevated.
       In other words, the short-run Phillips curve may flatten 
     out. One important reason for this non-linearity, in my view, 
     is downward nominal wage rigidity--that is, the reluctance or 
     inability of many firms to cut nominal wages.
       The solid blue bars in figure 4 present a snapshot of the 
     distribution of nominal wage changes for individual jobs 
     during the depth of the current labor market slump, based on 
     data collected by the Bureau of Labor Statistics. For 
     comparison, the dashed red line presents a hypothetical 
     distribution of wage changes, using a normal distribution 
     that approximates the actual distribution of wage changes 
     greater than zero. The distribution of actual wage changes 
     shows that a relatively high percentage of workers saw no 
     change in their nominal wage, and relatively few experienced 
     modest wage cuts. This pile-up phenomenon at zero suggests 
     that, even when the unemployment rate was around 10 percent, 
     many firms were reluctant to cut nominal wage rates. In the 
     absence of this barrier, nominal gains in wages and unit 
     labor costs would have likely been even more subdued given 
     the severity of the economic downturn, with the result that 
     inflation would probably now be running at a lower rate.
       Anchored inflation expectations are another reason why 
     inflation has remained close to 2 percent in the face of very 
     low resource utilization. As shown in figure 5, survey 
     measures of longer-horizon inflation expectations have 
     remained nearly constant since the mid-1990s even as actual 
     inflation has fluctuated. As a result, the current slump has 
     not generated the downward spiral of falling expected and 
     actual inflation that a simple accelerationist model of 
     inflation might have predicted. Indeed, keeping inflation 
     expectations from declining has been an important success of 
     monetary policy over the past few years. At the same time, 
     the fact that longer-term inflation expectations have not 
     risen above 2 percent has also proved extremely valuable, for 
     it has freed the FOMC to take strong actions to support the 
     economic recovery without greatly worrying that higher energy 
     and commodity prices would become ingrained in inflation and 
     inflation expectations, as they did in the 1970s.
       While my modal outlook calls for only a gradual reduction 
     in labor market slack and a stable pace of inflation near the 
     FOMC's longer-run objective of 2 percent, I see substantial 
     risks to this outlook, particularly to

[[Page 12011]]

     the downside. As I mentioned before, even without any 
     political gridlock, fiscal policy is bound to become 
     substantially less accommodative from early 2013 on. However, 
     federal fiscal policy could turn even more restrictive if the 
     Congress does not reach agreement on several important tax 
     and budget policy issues before the end of this year; in 
     fact, the CBO recently warned that the potential hit to gross 
     domestic product (GDP) growth could be sufficient to push the 
     economy into recession in 2013. The deterioration of 
     financial conditions in Europe of late, coupled with notable 
     declines in global equity markets, also serve as a reminder 
     that highly destabilizing outcomes cannot be ruled out. 
     Finally, besides these clearly identifiable sources of risk, 
     there remains the broader issue that economic forecasters 
     have repeatedly overestimated the strength of the recovery 
     and so still may be too optimistic about the prospects that 
     growth will strengthen.
       Although I view the bulk of the increase in unemployment 
     since 2007 as cyclical, I am concerned that it could become a 
     permanent problem if the recovery were to stall. In this 
     economic downturn, the fraction of the workforce unemployed 
     for six months or more has climbed much more than in previous 
     recessions, and remains at a remarkably high level. Continued 
     high unemployment could wreak long-term damage by eroding the 
     skills and labor force attachment of workers suffering long-
     term unemployment, thereby turning what was initially 
     cyclical into structural unemployment. This risk provides 
     another important reason to support the recovery by 
     maintaining a highly accommodative stance of monetary policy.


            The Conduct of Policy with Unconventional Tools

       Now turning to monetary policy, I will begin by discussing 
     the FOMC's reliance on unconventional tools to address the 
     disappointing pace of recovery. I will then elaborate my 
     rationale for supporting a highly accommodative policy 
     stance.
       As you know, since late 2008, the FOMC's standard policy 
     tool, the target federal funds rate, has been maintained at 
     the zero lower bound. To provide further accommodation, we 
     have employed two unconventional tools to support the 
     recovery--extended forward guidance about the future path of 
     the federal funds rate, and large-scale asset purchases and 
     other balance sheet actions that have greatly increased the 
     size and duration of the Federal Reserve's portfolio.
       These two tools have become increasingly important because 
     the recovery from the recession has turned out to be 
     persistently slower than either the FOMC or private 
     forecasters anticipated. Figure 6 illustrates the magnitude 
     of the disappointment by comparing Blue Chip forecasts for 
     real GDP growth made two years ago with ones made earlier 
     this year. As shown by the dashed blue line, private 
     forecasters in early 2010 anticipated that real GDP would 
     expand at an average annual rate of just over 3 percent from 
     2010 through 2014. However, actual growth in 2011 and early 
     2012 has turned out to be much weaker than expected, and, as 
     indicated by the dotted red line, private forecasters now 
     anticipate only a modest acceleration in real activity over 
     the next few years.
       In response to the evolving outlook, the FOMC has 
     progressively added policy accommodation using both of its 
     unconventional tools. For example, since the federal funds 
     rate target was brought down to a range of 0 to \1/4\ percent 
     in December 2008, the FOMC has gradually adjusted its forward 
     guidance about the anticipated future path of the federal 
     funds rate. In each meeting statement from March 2009 through 
     June 2011, the Committee indicated its expectation that 
     economic conditions ``are likely to warrant exceptionally low 
     levels of the federal funds rate for an extended period.'' At 
     the August 2011 meeting, the Committee decided to provide 
     more specific information about the likely time horizon by 
     substituting the phrase ``at least through mid-2013'' for the 
     phrase ``for an extended period''; at the January 2012 
     meeting, this horizon was extended to ``at least through late 
     2014.'' Has this guidance worked? Figure 7 illustrates how 
     dramatically forecasters' expectations of future short-term 
     interest rates have changed. As the dashed blue line 
     indicates, the Blue Chip consensus forecast made in early 
     2010 anticipated that the Treasury-bill rate would now stand 
     at close to 3\1/2\ percent; today, in contrast, private 
     forecasters expect short-term interest rates to remain very 
     low in 2014.
       Of course, much of this revision in interest rate 
     projections would likely have occurred in the absence of 
     explicit forward guidance; given the deterioration in 
     projections of real activity due to the unanticipated 
     persistence of headwinds, and the continued subdued outlook 
     for inflation, forecasters would naturally have anticipated a 
     greater need for the FOMC to provide continued monetary 
     accommodation. However, I believe the changes over time in 
     the language of the FOMC statement, coupled with information 
     provided by Chairman Bernanke and others in speeches and 
     congressional testimony, helped the public understand better 
     the Committee's likely policy response given the slower-than-
     expected economic recovery. As a result, forecasters and 
     market participants appear to have marked down their 
     expectations for future short-term interest rates by more 
     than they otherwise would have, thereby putting additional 
     downward pressure on long-term interest rates, improving 
     broader financial conditions, and lending support to 
     aggregate demand.
       The FOMC has also provided further monetary accommodation 
     over time by altering the size and composition of the Federal 
     Reserve's securities holdings, shown in figure 8. The 
     expansion in the volume of securities held by the Federal 
     Reserve is shown in the left panel of the figure. During 2009 
     and early 2010, the Federal Reserve purchased about $1.4 
     trillion in agency mortgage-backed securities and agency debt 
     securities and about $300 billion in longer-term Treasury 
     securities. In November 2010, the Committee initiated an 
     additional $600 billion in purchases of longer-term Treasury 
     securities, which were completed at the end of June of last 
     year. Last September, the FOMC decided to implement the 
     ``Maturity Extension Program,'' which affected the maturity 
     composition of our Treasury holdings as shown in the right 
     panel. Through this program, the FOMC is extending the 
     average maturity of its securities holdings by selling $400 
     billion of Treasury securities with remaining maturities of 3 
     years or less and purchasing an equivalent amount of Treasury 
     securities with remaining maturities of 6 to 30 years. These 
     transactions are currently scheduled to be completed at the 
     end of this month.
       Research by Federal Reserve staff and others suggests that 
     our balance sheet operations have had substantial effects on 
     longer-term Treasury yields, principally by reducing term 
     premiums on longer-dated Treasury securities. Figure 9 
     provides an estimate, based on Federal Reserve Board staff 
     calculations, of the cumulative reduction of the term premium 
     on 10-year Treasury securities from the three balance sheet 
     programs. These results suggest that our portfolio actions 
     are currently keeping 10-year Treasury yields roughly 60 
     basis points lower than they otherwise would be. Other 
     evidence suggests that this downward pressure has had 
     favorable spillover effects on other financial markets, 
     leading to lower long-term borrowing costs for households and 
     firms, higher equity valuations, and other improvements in 
     financial conditions that in turn have supported consumption, 
     investment, and net exports. Because the term premium effect 
     depends on both the Federal Reserve's current and expected 
     future asset holdings, most of this effect--without further 
     actions--will likely wane over the next few years as the 
     effect depends less and less on the current elevated level of 
     the balance sheet and increasingly on the level of holdings 
     during and after the normalization of our portfolio.


             The Rationale for Highly Accommodative Policy

       I have already noted that, in my view, an extended period 
     of highly accommodative policy is necessary to combat the 
     persistent headwinds to recovery. I will next explain how 
     I've reached this policy judgment. In evaluating the stance 
     of policy, I find the prescriptions from simple policy rules 
     a logical starting point. A wide range of such rules has been 
     examined in the academic literature, the most famous of which 
     is that proposed by John Taylor in his 1993 study. Rules of 
     the general sort proposed by Taylor (1993) capture well our 
     statutory mandate to promote maximum employment and price 
     stability by prescribing that the federal funds rate should 
     respond to the deviation of inflation from its longer-run 
     goal and to the output gap, given that the economy should be 
     at or close to full employment when the output gap--the 
     difference between actual GDP and an estimate of potential 
     output--is closed. Moreover, research suggests that such 
     simple rules can be reasonably robust to uncertainty about 
     the true structure of the economy, as they perform well in a 
     variety of models. Today, I will consider the prescriptions 
     of two such benchmark rules--Taylor's 1993 rule, and a 
     variant that is twice as responsive to economic slack. In my 
     view, this latter rule is more consistent with the FOMC's 
     commitment to follow a balanced approach to promoting our 
     dual mandate, and so I will refer to it as the ``balanced-
     approach'' rule.
       To show the prescriptions these rules would have called for 
     at the April FOMC meeting, I start with an illustrative 
     baseline outlook constructed using the projections for 
     unemployment, inflation, and the federal funds rate that FOMC 
     participants reported in April. I then employ the dynamics of 
     one of the Federal Reserve's economic models, the FRB/US 
     model, to solve for the joint paths of these three variables 
     if the short-term interest rate had instead been set 
     according to the Taylor (1993) rule or the balanced-approach 
     rule, subject, in both cases, to the zero lower bound 
     constraint on the federal funds rate. The dashed red line in 
     figure 10 shows the resulting path for the federal funds rate 
     under Taylor (1993) and the solid blue line with open circles 
     illustrates the corresponding path using the balanced-
     approach rule. In both simulations, the private sector fully 
     understands that monetary policy follows the particular rule 
     in force.

[[Page 12012]]

     Figure 10 shows that the Taylor rule calls for monetary 
     policy to tighten immediately, while the balanced-approach 
     rule prescribes raising the federal funds rate in the fourth 
     quarter of 2014--the earliest date consistent with the FOMC's 
     current forward guidance of ``exceptionally low levels for 
     the federal funds rate at least through late 2014.''
       Although simple rules provide a useful starting point in 
     determining appropriate policy, they by no means deserve the 
     ``last word''--especially in current circumstances. An 
     alternative approach, also illustrated in figure 10, is to 
     compute an ``optimal control'' path for the federal funds 
     rate using an economic model--FRB/US, in this case. Such a 
     path is chosen to minimize the value of a specific ``loss 
     function'' conditional on a baseline forecast of economic 
     conditions. The loss function attempts to quantify the social 
     costs resulting from deviations of inflation from the 
     Committee's longer-run goal and from deviations of 
     unemployment from its longer-run normal rate. The solid green 
     line with dots in figure 10 shows the ``optimal control'' 
     path for the federal funds rate, again conditioned on the 
     illustrative baseline outlook. This policy involves keeping 
     the federal funds rate close to zero until late 2015, four 
     quarters longer than the balanced-approach rule prescription 
     and several years longer than the Taylor rule. Importantly, 
     optimal control calls for a later lift-off date even though 
     this benchmark--unlike the simple policy rules--implicitly 
     takes full account of the additional stimulus to real 
     activity and inflation being provided over time by the 
     Federal Reserve's other policy tool, the past and projected 
     changes to the size and maturity of its securities holdings.
       Figure 11 shows that, by keeping the federal funds rate at 
     its current level for longer, monetary policy under the 
     balanced-approach rule achieves a more rapid reduction of the 
     unemployment rate than monetary policy under the Taylor 
     (1993) rule does, while nonetheless keeping inflation near 2 
     percent. But the improvement in labor market conditions is 
     even more notable under the optimal control path, even as 
     inflation remains close to the FOMC's long-run inflation 
     objective.
       As I noted, simple rules have the advantage of delivering 
     good policy outcomes across a broad range of models, and are 
     thereby relatively robust to our limited understanding of the 
     precise working of the economy--in contrast to optimal-
     control policies, whose prescriptions are sensitive to the 
     specification of the particular model used in the analysis. 
     However, simple rules also have their shortcomings, leading 
     them to significantly understate the case for keeping policy 
     persistently accommodative in current circumstances.
       One of these shortcomings is that the rules do not adjust 
     for the constraints that the zero lower bound has placed on 
     conventional monetary policy since late 2008. A second is 
     that they do not fully take account of the protracted nature 
     of the forces that have been restraining aggregate demand in 
     the aftermath of the housing bust. As I've emphasized, the 
     pace of the current recovery has turned out to be 
     persistently slower than most observers expected, and 
     forecasters expect it to remain quite moderate by historical 
     standards. The headwinds that explain this disappointing 
     performance represent a substantial departure from normal 
     cyclical dynamics. As a result, the economy's equilibrium 
     real federal funds rate--that is, the rate that would be 
     consistent with full employment over the medium run--is 
     probably well below its historical average, which the 
     intercept of simple policy rules is supposed to approximate. 
     By failing to fully adjust for this decline, the 
     prescriptions of simple policy rules--which provide a useful 
     benchmark under normal circumstances--could be significantly 
     too restrictive now and could remain so for some time to 
     come. In this regard, I think it is informative that the Blue 
     Chip consensus forecast released in March showed the real 
     three-month Treasury bill rate settling down at only 1\1/4\ 
     percent late in the decade, down 120 basis points from the 
     long-run projections made prior to the recession.


                             Looking Ahead

       Recent labor market reports and financial developments 
     serve as a reminder that the economy remains vulnerable to 
     setbacks. Indeed, the simulations I described above did not 
     take into account this new information. In our policy 
     deliberations at the upcoming FOMC meeting we will assess the 
     effects of these developments on the economic forecast. If 
     the Committee were to judge that the recovery is unlikely to 
     proceed at a satisfactory pace (for example, that the 
     forecast entails little or no improvement in the labor market 
     over the next few years), or that the downside risks to the 
     outlook had become sufficiently great, or that inflation 
     appeared to be in danger of declining notably below its 2 
     percent objective, I am convinced that scope remains for the 
     FOMC to provide further policy accommodation either through 
     its forward guidance or through additional balance-sheet 
     actions. In taking these decisions, however, we would need to 
     balance two considerations.
       On the one hand, our unconventional tools have some 
     limitations and costs. For example, the effects of forward 
     guidance are likely to be weaker the longer the horizon of 
     the guidance, implying that it may be difficult to provide 
     much more stimulus through this channel. As for our balance 
     sheet operations, although we have now acquired some 
     experience with this tool, there is still considerable 
     uncertainty about its likely economic effects. Moreover, some 
     have expressed concern that a substantial further expansion 
     of the balance sheet could interfere with the Fed's ability 
     to execute a smooth exit from its accommodative policies at 
     the appropriate time. I disagree with this view: The FOMC has 
     tested a variety of tools to ensure that we will be able to 
     raise short-term interest rates when needed while gradually 
     returning the portfolio to a more normal size and 
     composition. But even if unjustified, such concerns could in 
     theory reduce confidence in the Federal Reserve and so lead 
     to an undesired increase in inflation expectations.
       On the other hand, risk management considerations arising 
     from today's unusual circumstances strengthen the case for 
     additional accommodation beyond that called for by simple 
     policy rules and optimal control under the modal outlook. In 
     particular, as I have noted, there are a number of 
     significant downside risks to the economic outlook, and hence 
     it may well be appropriate to insure against adverse shocks 
     that could push the economy into territory where a self-
     reinforcing downward spiral of economic weakness would be 
     difficult to arrest.


                               Conclusion

       In my remarks this evening I have sought to explain why, in 
     my view, a highly accommodative monetary policy will remain 
     appropriate for some time to come. My views concerning the 
     stance of monetary policy reflect the FOMC's firm commitment 
     to the goals of maximum employment and stable prices, my 
     appraisal of the medium term outlook (which is importantly 
     shaped by the persistent legacy of the housing bust and 
     ensuing financial crisis), and by my assessment of the 
     balance of risks facing the economy. Of course, as I've 
     emphasized, the outlook is uncertain and the Committee will 
     need to adjust policy as appropriate as actual conditions 
     unfold. For this reason, the FOMC's forward guidance is 
     explicitly conditioned on its anticipation of ``low rates of 
     resource utilization and a subdued outlook for inflation over 
     the medium run.'' If the recovery were to proceed faster than 
     expected or if inflation pressures were to pick up 
     materially, the FOMC could adjust policy by bringing forward 
     the expected date of tightening. In contrast, if the 
     Committee judges that the recovery is proceeding at an 
     insufficient pace, we could undertake portfolio actions such 
     as additional asset purchases or a further maturity extension 
     program. It is for this reason that the FOMC emphasized, in 
     its statement following the April meeting, that it would 
     ``regularly review the size and composition of its securities 
     holdings and is prepared to adjust those holdings as 
     appropriate to promote a stronger economic recovery in a 
     context of price stability.''

  Mr. KUCINICH. I would also like to include in the record of this 
debate an article from Bloomberg News that talks about how secret Fed 
loans gave banks billions that were undisclosed to Congress.

                  [From: Bloomberg Markets Magazine, 
                             Nov. 27, 2011]

    Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress

              (By Bob Ivry, Bradley Keoun, and Phi Kuntz)

       The Federal Reserve and the big banks fought for more than 
     two years to keep details of the largest bailout in U.S. 
     history a secret. Now, the rest of the world can see what it 
     was missing. The Fed didn't tell anyone which banks were in 
     trouble so deep they required a combined $1.2 trillion on 
     Dec. 5, 2008, their single neediest day. Bankers didn't 
     mention that they took tens of billions of dollars in 
     emergency loans at the same time they were assuring investors 
     their firms were healthy. And no one calculated until now 
     that banks reaped an estimated $13 billion of income by 
     taking advantage of the Fed's below-market rates, Bloomberg 
     Markets magazine reports in its January issue.
       Saved by the bailout, bankers lobbied against government 
     regulations, a job made easier by the Fed, which never 
     disclosed the details of the rescue to lawmakers even as 
     Congress doled out more money and debated new rules aimed at 
     preventing the next collapse.
       A fresh narrative of the financial crisis of 2007 to 2009 
     emerges from 29,000 pages of Fed documents obtained under the 
     Freedom of Information Act and central bank records of more 
     than 21,000 transactions. While Fed officials say that almost 
     all of the loans were repaid and there have been no losses, 
     details suggest taxpayers paid a price beyond dollars as the 
     secret funding helped preserve a broken status quo and 
     enabled the biggest banks to grow even bigger.


                         ``Change Their Votes''

       ``When you see the dollars the banks got, it's hard to make 
     the case these were successful institutions,'' says Sherrod 
     Brown, a Democratic Senator from Ohio who in 2010 introduced 
     an unsuccessful bill to limit bank

[[Page 12013]]

     size. ``This is an issue that can unite the Tea Party and 
     Occupy Wall Street. There are lawmakers in both parties who 
     would change their votes now.'' The size of the bailout came 
     to light after Bloomberg LP, the parent of Bloomberg News, 
     won a court case against the Fed and a group of the biggest 
     U.S. banks called Clearing House Association LLC to force 
     lending details into the open.
       The Fed, headed by Chairman Ben S. Bernanke, argued that 
     revealing borrower details would create a stigma--investors 
     and counterparties would shun firms that used the central 
     bank as lender of last resort--and that needy institutions 
     would be reluctant to borrow in the next crisis. Clearing 
     House Association fought Bloomberg's lawsuit up to the U.S. 
     Supreme Court, which declined to hear the banks' appeal in 
     March 2011.


                             $7.77 Trillion

       The amount of money the central bank parceled out was 
     surprising even to Gary H. Stern, president of the Federal 
     Reserve Bank of Minneapolis from 1985 to 2009, who says he 
     ``wasn't aware of the magnitude.'' It dwarfed the Treasury 
     Department's better-known $700 billion Troubled Asset Relief 
     Program, or TARP. Add up guarantees and lending limits, and 
     the Fed had committed $7.77 trillion as of March 2009 to 
     rescuing the financial system, more than half the value of 
     everything produced in the U.S. that year.
       ``TARP at least had some strings attached,'' says Brad 
     Miller, a North Carolina Democrat on the House Financial 
     Services Committee, referring to the program's executive-pay 
     ceiling. ``With the Fed programs, there was nothing.''
       Bankers didn't disclose the extent of their borrowing. On 
     Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief 
     Executive Officer Kenneth D. Lewis wrote to shareholders that 
     he headed ``one of the strongest and most stable major banks 
     in the world.'' He didn't say that his Charlotte, North 
     Carolina-based firm owed the central bank $86 billion that 
     day.


                          ``Motivate Others''

       JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a 
     March 26, 2010, letter that his bank used the Fed's Term 
     Auction Facility ``at the request of the Federal Reserve to 
     help motivate others to use the system.'' He didn't say that 
     the New York-based bank's total TAF borrowings were almost 
     twice its cash holdings or that its peak borrowing of $48 
     billion on Feb. 26, 2009, came more than a year after the 
     program's creation.
       Howard Opinsky, a spokesman for JPMorgan (JPM), declined to 
     comment about Dimon's statement or the company's Fed 
     borrowings. Jerry Dubrowski, a spokesman for Bank of America, 
     also declined to comment.
       The Fed has been lending money to banks through its so- 
     called discount window since just after its founding in 1913. 
     Starting in August 2007, when confidence in banks began to 
     wane, it created a variety of ways to bolster the financial 
     system with cash or easily traded securities. By the end of 
     2008, the central bank had established or expanded 11 lending 
     facilities catering to banks, securities firms and 
     corporations that couldn't get short-term loans from their 
     usual sources.


                           ``Core Function''

       ``Supporting financial-market stability in times of extreme 
     market stress is a core function of central banks,'' says 
     William B. English, director of the Fed's Division of 
     Monetary Affairs. ``Our lending programs served to prevent a 
     collapse of the financial system and to keep credit flowing 
     to American families and businesses.''
       The Fed has said that all loans were backed by appropriate 
     collateral. That the central bank didn't lose money should 
     ``lead to praise of the Fed, that they took this 
     extraordinary step and they got it right,'' says Phillip 
     Swagel, a former assistant Treasury secretary under Henry M. 
     Paulson and now a professor of international economic policy 
     at the University of Maryland. The Fed initially released 
     lending data in aggregate form only. Information on which 
     banks borrowed, when, how much and at what interest rate was 
     kept from public view.
       The secrecy extended even to members of President George W. 
     Bush's administration who managed TARP. Top aides to Paulson 
     weren't privy to Fed lending details during the creation of 
     the program that provided crisis funding to more than 700 
     banks, say two former senior Treasury officials who requested 
     anonymity because they weren't authorized to speak.


                                Big Six

       The Treasury Department relied on the recommendations of 
     the Fed to decide which banks were healthy enough to get TARP 
     money and how much, the former officials say. The six biggest 
     U.S. banks, which received $160 billion of TARP funds, 
     borrowed as much as $460 billion from the Fed, measured by 
     peak daily debt calculated by Bloomberg using data obtained 
     from the central bank. Paulson didn't respond to a request 
     for comment.
       The six--JPMorgan, Bank of America, Citigroup Inc. (C), 
     Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and 
     Morgan Stanley--accounted for 63 percent of the average daily 
     debt to the Fed by all publicly traded U.S. banks, money 
     managers and investment- services firms, the data show. By 
     comparison, they had about half of the industry's assets 
     before the bailout, which lasted from August 2007 through 
     April 2010. The daily debt figure excludes cash that banks 
     passed along to money-market funds.


                            Bank Supervision

       While the emergency response prevented financial collapse, 
     the Fed shouldn't have allowed conditions to get to that 
     point, says Joshua Rosner, a banking analyst with Graham 
     Fisher & Co. in New York who predicted problems from lax 
     mortgage underwriting as far back as 2001. The Fed, the 
     primary supervisor for large financial companies, should have 
     been more vigilant as the housing bubble formed, and the 
     scale of its lending shows the ``supervision of the banks 
     prior to the crisis was far worse than we had imagined,'' 
     Rosner says.
       Bernanke in an April 2009 speech said that the Fed provided 
     emergency loans only to ``sound institutions,'' even though 
     its internal assessments described at least one of the 
     biggest borrowers, Citigroup, as ``marginal.''
       On Jan. 14, 2009, six days before the company's central 
     bank loans peaked, the New York Fed gave CEO Vikram Pandit a 
     report declaring Citigroup's financial strength to be 
     ``superficial,'' bolstered largely by its $45 billion of 
     Treasury funds. The document was released in early 2011 by 
     the Financial Crisis Inquiry Commission, a panel empowered by 
     Congress to probe the causes of the crisis.


                         ``Need Transparency''

       Andrea Priest, a spokeswoman for the New York Fed, declined 
     to comment, as did Jon Diat, a spokesman for Citigroup.
       ``I believe that the Fed should have independence in 
     conducting highly technical monetary policy, but when they 
     are putting taxpayer resources at risk, we need transparency 
     and accountability,'' says Alabama Senator Richard Shelby, 
     the top Republican on the Senate Banking Committee.
       Judd Gregg, a former New Hampshire senator who was a lead 
     Republican negotiator on TARP, and Barney Frank, a 
     Massachusetts Democrat who chaired the House Financial 
     Services Committee, both say they were kept in the dark.
       ``We didn't know the specifics,'' says Gregg, who's now an 
     adviser to Goldman Sachs.
       ``We were aware emergency efforts were going on,'' Frank 
     says. ``We didn't know the specifics.''


                            Disclose Lending

       Frank co-sponsored the Dodd-Frank Wall Street Reform and 
     Consumer Protection Act, billed as a fix for financial-
     industry excesses. Congress debated that legislation in 2010 
     without a full understanding of how deeply the banks had 
     depended on the Fed for survival. It would have been 
     ``totally appropriate'' to disclose the lending data by mid-
     2009, says David Jones, a former economist at the Federal 
     Reserve Bank of New York who has written four books about the 
     central bank.
       ``The Fed is the second-most-important appointed body in 
     the U.S., next to the Supreme Court, and we're dealing with a 
     democracy,'' Jones says. ``Our representatives in Congress 
     deserve to have this kind of information so they can oversee 
     the Fed.''
       The Dodd-Frank law required the Fed to release details of 
     some emergency-lending programs in December 2010. It also 
     mandated disclosure of discount-window borrowers after a two-
     year lag.


                            Protecting TARP

       TARP and the Fed lending programs went ``hand in hand,'' 
     says Sherrill Shaffer, a banking professor at the University 
     of Wyoming in Laramie and a former chief economist at the New 
     York Fed. While the TARP money helped insulate the central 
     bank from losses, the Fed's willingness to supply seemingly 
     unlimited financing to the banks assured they wouldn't 
     collapse, protecting the Treasury's TARP investments, he 
     says.
       ``Even though the Treasury was in the headlines, the Fed 
     was really behind the scenes engineering it,'' Shaffer says.
       Congress, at the urging of Bernanke and Paulson, created 
     TARP in October 2008 after the bankruptcy of Lehman Brothers 
     Holdings Inc. made it difficult for financial institutions to 
     get loans. Bank of America and New York-based Citigroup each 
     received $45 billion from TARP. At the time, both were 
     tapping the Fed. Citigroup hit its peak borrowing of $99.5 
     billion in January 2009, while Bank of America topped out in 
     February 2009 at $91.4 billion.


                                No Clue

       Lawmakers knew none of this.
       They had no clue that one bank, New York-based Morgan 
     Stanley (MS), took $107 billion in Fed loans in September 
     2008, enough to pay off one-tenth of the country's delinquent 
     mortgages. The firm's peak borrowing occurred the same day 
     Congress rejected the proposed TARP bill, triggering the 
     biggest point drop ever in the Dow Jones Industrial Average. 
     (INDU) The bill later passed, and Morgan Stanley got $10 
     billion of TARP funds, though Paulson said only ``healthy 
     institutions'' were eligible.
       Mark Lake, a spokesman for Morgan Stanley, declined to 
     comment, as did spokesmen for Citigroup and Goldman Sachs.

[[Page 12014]]

       Had lawmakers known, it ``could have changed the whole 
     approach to reform legislation,'' says Ted Kaufman, a former 
     Democratic Senator from Delaware who, with Brown, introduced 
     the bill to limit bank size.


                              Moral Hazard

       Kaufman says some banks are so big that their failure could 
     trigger a chain reaction in the financial system. The cost of 
     borrowing for so-called too-big-to-fail banks is lower than 
     that of smaller firms because lenders believe the government 
     won't let them go under. The perceived safety net creates 
     what economists call moral hazard--the belief that bankers 
     will take greater risks because they'll enjoy any profits 
     while shifting losses to taxpayers.
       If Congress had been aware of the extent of the Fed rescue, 
     Kaufman says, he would have been able to line up more support 
     for breaking up the biggest banks.
       Byron L. Dorgan, a former Democratic senator from North 
     Dakota, says the knowledge might have helped pass legislation 
     to reinstate the Glass-Steagall Act, which for most of the 
     last century separated customer deposits from the riskier 
     practices of investment banking.
       ``Had people known about the hundreds of billions in loans 
     to the biggest financial institutions, they would have 
     demanded Congress take much more courageous actions to stop 
     the practices that caused this near financial collapse,'' 
     says Dorgan, who retired in January.


                             Getting Bigger

       Instead, the Fed and its secret financing helped America's 
     biggest financial firms get bigger and go on to pay employees 
     as much as they did at the height of the housing bubble.
       Total assets held by the six biggest U.S. banks increased 
     39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 
     trillion on the same day in 2006, according to Fed data.
       For so few banks to hold so many assets is ``un-American,'' 
     says Richard W. Fisher, president of the Federal Reserve Bank 
     of Dallas. ``All of these gargantuan institutions are too big 
     to regulate. I'm in favor of breaking them up and slimming 
     them down.''
       Employees at the six biggest banks made twice the average 
     for all U.S. workers in 2010, based on Bureau of Labor 
     Statistics hourly compensation cost data. The banks spent 
     $146.3 billion on compensation in 2010, or an average of 
     $126,342 per worker, according to data compiled by Bloomberg. 
     That's up almost 20 percent from five years earlier compared 
     with less than 15 percent for the average worker. Average pay 
     at the banks in 2010 was about the same as in 2007, before 
     the bailouts.


                         ``Wanted to Pretend''

       ``The pay levels came back so fast at some of these firms 
     that it appeared they really wanted to pretend they hadn't 
     been bailed out,'' says Anil Kashyap, a former Fed economist 
     who's now a professor of economics at the University of 
     Chicago Booth School of Business. ``They shouldn't be 
     surprised that a lot of people find some of the stuff that 
     happened totally outrageous.''
       Bank of America took over Merrill Lynch & Co. at the urging 
     of then-Treasury Secretary Paulson after buying the biggest 
     U.S. home lender, Countrywide Financial Corp. When the 
     Merrill Lynch purchase was announced on Sept. 15, 2008, Bank 
     of America had $14.4 billion in emergency Fed loans and 
     Merrill Lynch had $8.1 billion. By the end of the month, Bank 
     of America's loans had reached $25 billion and Merrill 
     Lynch's had exceeded $60 billion, helping both firms keep the 
     deal on track.


                            Prevent Collapse

       Wells Fargo bought Wachovia Corp., the fourth-largest U.S. 
     bank by deposits before the 2008 acquisition. Because 
     depositors were pulling their money from Wachovia, the Fed 
     channeled $50 billion in secret loans to the Charlotte, North 
     Carolina-based bank through two emergency-financing programs 
     to prevent collapse before Wells Fargo could complete the 
     purchase. ``These programs proved to be very successful at 
     providing financial markets the additional liquidity and 
     confidence they needed at a time of unprecedented 
     uncertainty,'' says Ancel Martinez, a spokesman for Wells 
     Fargo.
       JPMorgan absorbed the country's largest savings and loan, 
     Seattle-based Washington Mutual Inc., and investment bank 
     Bear Stearns Cos. The New York Fed, then headed by Timothy F. 
     Geithner, who's now Treasury secretary, helped JPMorgan 
     complete the Bear Stearns deal by providing $29 billion of 
     financing, which was disclosed at the time. The Fed also 
     supplied Bear Stearns with $30 billion of secret loans to 
     keep the company from failing before the acquisition closed, 
     central bank data show. The loans were made through a program 
     set up to provide emergency funding to brokerage firms.


                       ``Regulatory Discretion''

       ``Some might claim that the Fed was picking winners and 
     losers, but what the Fed was doing was exercising its 
     professional regulatory discretion,'' says John Deane, a 
     former speechwriter at the New York Fed who's now executive 
     vice president for policy at the Financial Services Forum, a 
     Washington-based group consisting of the CEOs of 20 of the 
     world's biggest financial firms. ``The Fed clearly felt it 
     had what it needed within the requirements of the law to 
     continue to lend to Bear and Wachovia.''
       The bill introduced by Brown and Kaufman in April 2010 
     would have mandated shrinking the six largest firms.
       ``When a few banks have advantages, the little guys get 
     squeezed,'' Brown says. ``That, to me, is not what capitalism 
     should be.''
       Kaufman says he's passionate about curbing too-big-to-fail 
     banks because he fears another crisis.


                          ``Can We Survive?''

       ``The amount of pain that people, through no fault of their 
     own, had to endure--and the prospect of putting them through 
     it again--is appalling,'' Kaufman says. ``The public has no 
     more appetite for bailouts. What would happen tomorrow if one 
     of these big banks got in trouble? Can we survive that?''
       Lobbying expenditures by the six banks that would have been 
     affected by the legislation rose to $29.4 million in 2010 
     compared with $22.1 million in 2006, the last full year 
     before credit markets seized up--a gain of 33 percent, 
     according to OpenSecrets.org, a research group that tracks 
     money in U.S. politics. Lobbying by the American Bankers 
     Association, a trade organization, increased at about the 
     same rate, OpenSecrets.org reported.
       Lobbyists argued the virtues of bigger banks. They're more 
     stable, better able to serve large companies and more 
     competitive internationally, and breaking them up would cost 
     jobs and cause ``long-term damage to the U.S. economy,'' 
     according to a Nov. 13, 2009, letter to members of Congress 
     from the FSF.
       The group's website cites Nobel Prize-winning economist 
     Oliver E. Williamson, a professor emeritus at the University 
     of California, Berkeley, for demonstrating the greater 
     efficiency of large companies.


                           ``Serious Burden''

       In an interview, Williamson says that the organization took 
     his research out of context and that efficiency is only one 
     factor in deciding whether to preserve too-big-to-fail banks.
       ``The banks that were too big got even bigger, and the 
     problems that we had to begin with are magnified in the 
     process,'' Williamson says. ``The big banks have incentives 
     to take risks they wouldn't take if they didn't have 
     government support. It's a serious burden on the rest of the 
     economy.''
       Deane says his group didn't mean to imply that Williamson 
     endorsed big banks.
       Top officials in President Barack Obama's administration 
     sided with the FSF in arguing against legislative curbs on 
     the size of banks.


                           Geithner, Kaufman

       On May 4, 2010, Geithner visited Kaufman in his Capitol 
     Hill office. As president of the New York Fed in 2007 and 
     2008, Geithner helped design and run the central bank's 
     lending programs. The New York Fed supervised four of the six 
     biggest U.S. banks and, during the credit crunch, put 
     together a daily confidential report on Wall Street's 
     financial condition. Geithner was copied on these reports, 
     based on a sampling of e-mails released by the Financial 
     Crisis Inquiry Commission.
       At the meeting with Kaufman, Geithner argued that the issue 
     of limiting bank size was too complex for Congress and that 
     people who know the markets should handle these decisions, 
     Kaufman says. According to Kaufman, Geithner said he 
     preferred that bank supervisors from around the world, 
     meeting in Basel, Switzerland, make rules increasing the 
     amount of money banks need to hold in reserve. Passing laws 
     in the U.S. would undercut his efforts in Basel, Geithner 
     said, according to Kaufman.
       Anthony Coley, a spokesman for Geithner, declined to 
     comment.


                         ``Punishing Success''

       Lobbyists for the big banks made the winning case that 
     forcing them to break up was ``punishing success,'' Brown 
     says. Now that they can see how much the banks were borrowing 
     from the Fed, senators might think differently, he says.
       The Fed supported curbing too-big-to-fail banks, including 
     giving regulators the power to close large financial firms 
     and implementing tougher supervision for big banks, says Fed 
     General Counsel Scott G. Alvarez. The Fed didn't take a 
     position on whether large banks should be dismantled before 
     they get into trouble.
       Dodd-Frank does provide a mechanism for regulators to break 
     up the biggest banks. It established the Financial Stability 
     Oversight Council that could order teetering banks to shut 
     down in an orderly way. The council is headed by Geithner.
       ``Dodd-Frank does not solve the problem of too big to 
     fail,'' says Shelby, the Alabama Republican. ``Moral hazard 
     and taxpayer exposure still very much exist.''


                              Below Market

       Dean Baker, co-director of the Center for Economic and 
     Policy Research in Washington, says banks ``were either in 
     bad shape or taking advantage of the Fed giving them a good 
     deal. The former contradicts their public statements. The 
     latter--getting loans at below-market rates during a 
     financial crisis--is quite a gift.''

[[Page 12015]]

       The Fed says it typically makes emergency loans more 
     expensive than those available in the marketplace to 
     discourage banks from abusing the privilege. During the 
     crisis, Fed loans were among the cheapest around, with 
     funding available for as low as 0.01 percent in December 
     2008, according to data from the central bank and money-
     market rates tracked by Bloomberg.
       The Fed funds also benefited firms by allowing them to 
     avoid selling assets to pay investors and depositors who 
     pulled their money. So the assets stayed on the banks' books, 
     earning interest.
       Banks report the difference between what they earn on loans 
     and investments and their borrowing expenses. The figure, 
     known as net interest margin, provides a clue to how much 
     profit the firms turned on their Fed loans, the costs of 
     which were included in those expenses. To calculate how much 
     banks stood to make, Bloomberg multiplied their tax-adjusted 
     net interest margins by their average Fed debt during 
     reporting periods in which they took emergency loans.


                              Added Income

       The 190 firms for which data were available would have 
     produced income of $13 billion, assuming all of the bailout 
     funds were invested at the margins reported, the data show.
       The six biggest U.S. banks' share of the estimated subsidy 
     was $4.8 billion, or 23 percent of their combined net income 
     during the time they were borrowing from the Fed. Citigroup 
     would have taken in the most, with $1.8 billion.
       ``The net interest margin is an effective way of getting at 
     the benefits that these large banks received from the Fed,'' 
     says Gerald A. Hanweck, a former Fed economist who's now a 
     finance professor at George Mason University in Fairfax, 
     Virginia.
       While the method isn't perfect, it's impossible to state 
     the banks' exact profits or savings from their Fed loans 
     because the numbers aren't disclosed and there isn't enough 
     publicly available data to figure it out.
       Opinsky, the JPMorgan spokesman, says he doesn't think the 
     calculation is fair because ``in all likelihood, such funds 
     were likely invested in very short-term investments,'' which 
     typically bring lower returns.


                            Standing Access

       Even without tapping the Fed, the banks get a subsidy by 
     having standing access to the central bank's money, says 
     Viral Acharya, a New York University economics professor who 
     has worked as an academic adviser to the New York Fed.
       ``Banks don't give lines of credit to corporations for 
     free,'' he says. ``Why should all these government guarantees 
     and liquidity facilities be for free?''
       In the September 2008 meeting at which Paulson and Bernanke 
     briefed lawmakers on the need for TARP, Bernanke said that if 
     nothing was done, ``unemployment would rise--to 8 or 9 
     percent from the prevailing 6.1 percent,'' Paulson wrote in 
     ``On the Brink'' (Business Plus, 2010).


                           Occupy Wall Street

       The U.S. jobless rate hasn't dipped below 8.8 percent since 
     March 2009, 3.6 million homes have been foreclosed since 
     August 2007, according to data provider RealtyTrac Inc., and 
     police have clashed with Occupy Wall Street protesters, who 
     say government policies favor the wealthiest citizens, in New 
     York, Boston, Seattle and Oakland, California.
       The Tea Party, which supports a more limited role for 
     government, has its roots in anger over the Wall Street 
     bailouts, says Neil M. Barofsky, former TARP special 
     inspector general and a Bloomberg Television contributing 
     editor.
       ``The lack of transparency is not just frustrating; it 
     really blocked accountability,'' Barofsky says. ``When people 
     don't know the details, they fill in the blanks. They believe 
     in conspiracies.''
       In the end, Geithner had his way. The Brown-Kaufman 
     proposal to limit the size of banks was defeated, 60 to 31. 
     Bank supervisors meeting in Switzerland did mandate minimum 
     reserves that institutions will have to hold, with higher 
     levels for the world's largest banks, including the six 
     biggest in the U.S. Those rules can be changed by individual 
     countries. They take full effect in 2019.
       Meanwhile, Kaufman says, ``we're absolutely, totally, 100 
     percent not prepared for another financial crisis.''

  This is all about disclosure and accountability. You know, the Fed's 
not some kind of hocus-pocus, black box operation. The Fed essentially 
supplants the constitutional mandate in article I, section 8 that 
belongs to the Congress of the United States.
  Let's look at some recent history here: 2008, subprime meltdown, 
collateralized debt obligations go back to mortgage-backed securities. 
Neighborhoods in Cleveland melting down, people losing their homes. The 
Fed looked the other way.
  And we're saying, don't go into the Fed; it will be political. Yes, 
it's political. We have unemployment because of politics. We have 
people losing their homes because of politics. We have banks getting 
uncalculated amounts of money from the Federal Reserve, and we don't 
even know about it.
  Meanwhile, people can't get a loan to keep their home or keep their 
business.
  Audit the Fed? You bet we should audit the Fed. We have to have 
accountability. It's time the Congress stood up for its constitutional 
role. Article I, section 8: power to coin and create money.
  It's time that we stood up for America's 99 percent. It's time that 
we stood up to the Federal Reserve that right now acts like it's some 
kind of high, exalted priesthood, unaccountable in a democracy.
  Let's change that by voting for the Paul bill.
  Mr. ISSA. I yield 1 minute to the gentlewoman from Wyoming (Mrs. 
Lummis).
  Mrs. LUMMIS. Mr. Speaker, before the financial crisis, the Fed's 
lending to the financial system was minimal, and monetary policy was 
limited; but since 2008, they've tripled their balance sheet and 
transacted nearly $16 trillion in loans.
  Clearly, Congress has delegated monetary policy to the Fed; and I, 
for one, am not advocating that we abolish the Fed. But Congress 
retains oversight responsibility, and Congress should insist on an 
accurate accounting of the Fed so Members of Congress can better 
understand monetary policy.
  Our colleague, Ron Paul, was instrumental in getting an audit of the 
Fed's emergency activities during the financial crisis, but 
restrictions remain in place on examining monetary policy actions such 
as quantitative easing and assisting failing banks in Europe.
  When the Fed's cumulative lending hits the size and scope to be 
greater than the entire GDP of the United States, it's past time for 
Congress to insist on transparency.
  Mr. CUMMINGS. Mr. Speaker, I reserve the balance of my time.
  Mr. ISSA. I yield myself 2 minutes.
  Mr. Speaker, it appears as though we agree on certain things. We 
agree that some transparency is required. We certainly agree, on a 
bipartisan basis, that what the GAO did, under Dodd-Frank, at a 
minimum, was a good thing. I think there's no question my colleague who 
was here earlier, Mr. Frank, certainly would agree to the numbers, the 
expansion of the Fed in that period that Mrs. Lummis talked about 
between 2008 and now.
  I think we would all agree the Federal Reserve is the people's bank. 
It is broadly owned by 316 or 320 million Americans.
  I served on the board of a public company, one that I founded. I 
understand that if you have more than 500 stockholders, you have an 
obligation to considerable disclosure.
  Although the Fed is audited to see whether, basically, some numbers 
are correct or not on a limited basis, the truth is the Federal Reserve 
is not open and transparent, not even years after they make decisions.
  I think the American people have a piercing question right now, one 
that is not the question that Dr. Paul was asking when he first wanted 
to audit the Fed. The question is, Will we be like Greece? Will we be 
like Germany? Will we be like the trauma that's sweeping over the 
European Union?
  Do we, in fact, know the true numbers? Do we know the extent of the 
leverage and the policies and the accuracy and the knowledge of the 
Federal Reserve?
  I think calmly we have to ask that question. Do we know what we need 
to know, or are we willing to not know, in hopes that we won't be 
political because we don't know?
  I've been in Congress for 12 full years at the end of this term, and 
I've learned one thing: Congress has a tendency to do two things well: 
nothing at all, and overreact. I trust today will be a day in which 
we're in between.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. ISSA. I yield myself an additional minute.
  We would do something so that we would know more a year from now than 
we know today. We would not overreact. We would not want to stifle what 
the Fed has done historically,

[[Page 12016]]

without an awful lot more study. Changes to an entity like the Central 
Bank should be done thoughtfully and over time.
  My friend, Dr. Paul, would like to do more than this bill does; but 
this minimal effort, offered on a bipartisan basis, is offered today 
because we believe the American people have a right to know, an 
interest to know, and a need to know.
  With that, I reserve the balance of my time.
  Mr. CUMMINGS. I yield 1 minute to the gentleman from Missouri (Mr. 
Clay).
  Mr. CLAY. Mr. Speaker, I rise in support of H.R. 459. This bill 
directs the Comptroller General to conduct an audit of the Federal 
Reserve.
  Since 1982, the GAO has had authority to audit the Federal Reserve 
Board and Bank, subject to exceptions for monetary policy-related 
decisions and activities.
  In 2009, Congress provided authority for the GAO to audit actions by 
the Fed under section 13(3) of the Federal Reserve Act to lend to any 
single and specific partnership or corporation, notwithstanding the 
generally applicable monetary policy-related exceptions.
  In 2010, the Dodd-Frank Wall Street Reform Act added new audit 
authorities. In addition, GAO has conducted a number of other reviews 
of Federal Reserve activities; but we need a full audit, and I urge my 
colleagues to vote for the bill.
  Mr. ISSA. Mr. Speaker, could I inquire how much time is available.
  The SPEAKER pro tempore. The gentleman from California has 4\1/4\ 
minutes remaining. The time of the gentleman from Maryland has expired.
  Mr. ISSA. Mr. Speaker, I won't use all of our time.
  I have a slightly different opinion than the ranking member's. I 
believe regular order has been followed on this bill, followed and then 
some.
  This is something that Dr. Paul has worked on, on a bipartisan basis, 
with Republican Presidents and Democratic Presidents, with Republican 
Congresses and Democratic Congresses. The support for this, as you saw 
here today, goes to Republicans and Democrats, Progressives, 
Conservatives, Blue Dogs.
  The American people want to know. I don't believe the American people 
are afraid to know. Of course, the American people would not be 
comfortable with interference with the Fed, with micromanaging policy 
decisions, with tearing down the institution.
  But, in fact, I think that the 9/11 of the financial market, if you 
will, the meltdown in 2008 and 2009, $1 trillion nearly in TARP money, 
and countless trillions in expansion of the balance sheet, have taught 
us one thing: what we don't know can hurt us.
  Now, before 9/11 of the financial market, before the meltdown, before 
Lehman Brothers and Bear, Stearns evaporated, we would have thought, 
well, there are some very smart people on Wall Street, and we'd have 
been right. But smart people can be wrong.
  We put very good people on the Federal Reserve Board. We choose very 
good chairmen. Chairman Bernanke was a choice of Republicans and 
Democrats alike.
  But, ultimately, looking over the shoulder by Congress, by my 
committee, by the Financial Services Committee, just to ask the 
question, are those numbers undeniable truths brought down on tablets; 
or are they, in fact, open to second guessing after the fact, 
questioning of whether or not a model works or whether there is just a 
small, but meaningful, opportunity for tens of trillions of dollars to 
fall on the backs of the American people if they got it wrong?

                              {time}  1600

  That's the question the American people asked, and after 2008, it's a 
question Congress must ask.
  When Chairman Frank voted for Ron Paul's bill, perhaps he didn't want 
it, but he voted for it as did countless Democrats. Ultimately, it was 
reduced--but not eliminated--in conference. There was some recognition 
that it needed to be audited.
  Today, what we are doing is asking to send to the Senate a piece of 
legislation that more purely and clearly says: I believe the American 
people have a right to know. Perhaps the Senate will take up a slightly 
different version. Perhaps it will be truly a one-time audit. Perhaps 
it will be limited.
  The American people need to hold us in the House and our counterparts 
in the Senate responsible, that we do know what we need to know and 
that we will never again say we rely on other people to be so smart 
that we shouldn't look over their shoulders. That's not the America 
that I grew up in. It's not the clear and transparent America the 
American people are asking for.
  With that, I urge the passage of this bipartisan bill, and I yield 
back the balance of my time.
  Mr. YOUNG of Florida. Mr. Speaker, I rise in strong support of H.R. 
459, the Federal Reserve Transparency Act. I am an original cosponsor 
of this important measure and I have long supported Representative 
Paul's efforts to authorize a full audit of the Federal Reserve by the 
Government Accountability Office (GAO).
  In 2009, I conducted a ``We the People Town Hall By Mail'' and asked 
my constituents how they felt about several issues before the Congress. 
Of the 32,000 Pinellas County residents who responded, 95 percent said 
they supported a full audit of the Federal Reserve.
  The Constitution gives the Congress the authority to coin money and 
to regulate the dollar's value. In an effort to remove politics from 
decisions about monetary policy, the Congress outsourced this 
responsibility to an independent Federal Reserve almost one hundred 
years ago.
  Unfortunately, for too long the Fed has operated in secret. Current 
law actually prohibits the Congress from having access to all of the 
Federal Reserve's books. The GAO serves as Congress's watchdog, and 
should be allowed to audit the Fed just as it does other agencies. Only 
through increased transparency can the Congress conduct the necessary 
oversight of the Fed and hold it accountable for the American people. 
This institution plays an important role in managing the dollar and the 
American people deserve to know what is being done to our currency.
  One of the few good provisions of the Dodd-Frank financial reform 
legislation was that it permitted a limited audit of the Federal 
Reserve's response to the financial crisis. What the GAO uncovered in 
this limited audit was astonishing. Between December 2007 and July 
2010, Fed committed trillions of dollars to backstop hundreds of 
financial institutions. Some of the largest of recipients of this aid 
were even foreign banks. According to Bloomberg News, ``the Fed and its 
secret financing helped America's biggest financial firms get bigger 
and go on to pay employees as much as they did at the height of the 
housing bubble.''
  Much of this emergency action was run through the Federal Reserve 
Bank of New York, which at that time was headed by Tim Geithner, who is 
now President Obama's Treasury Secretary.
  The Fed has continued its extraordinary tactics. In addition to 
holding the federal funds rate at practically zero since December 2008, 
the Fed has engaged in programs called Quantitative Easing 1, 
Quantitative Easing 2, and Operation Twist. In 2011 alone, the Fed's 
balance sheet grew by 20 percent. The Federal Reserve says it will 
likely hold interest rates at ``exceptionally low levels'' through 2014 
and there is speculation that it will soon implement a third round of 
quantitative easing.
  Mr. Speaker, this legislation has broad support from all sides. In 
fact, it seems like the only one who opposes H.R. 459 is the Chairman 
of the Federal Reserve Ben Bernanke. My question would be: ``What is 
there to hide?'' We should have passed this legislation long ago, and 
it is my hope that my colleagues in the Senate will follow the House's 
lead and act quickly to approve the Federal Reserve Transparency Act so 
that we can finally shine a light on the Fed's policies.
  Mr. GINGREY of Georgia. Mr. Speaker, I rise in strong support of H.R. 
459, the Federal Reserve Transparency Act of 2012, and I would like to 
commend our colleague from Texas, Dr. Ron Paul, who has worked 
tirelessly as the author of this legislation for a number of years.
  With its ability to control monetary supply policy, the Federal 
Reserve is arguably the most powerful entity of the federal government. 
Yet, despite this power, current law specifically prevents Congress 
from fully auditing the monetary policy actions the Fed takes that 
impact each of us on a daily basis.
  Mr. Speaker, as a proud cosponsor of H.R. 459, I believe it is well 
past time to change that policy. This legislation would simply require 
the Comptroller General to conduct a full

[[Page 12017]]

audit of the Federal Reserve before the end of 2012.
  At a time when the Federal Reserve has expanded its balance sheet to 
$3 trillion as of last month, the American people deserve to have 
transparency and accountability when it comes to our monetary supply 
policy. I urge all of my colleagues to support H.R. 459.
  Mrs. MILLER of Michigan. Mr. Speaker, in America we believe in 
freedom, in democracy and in the belief that in this country the people 
rule. And in order for the people to rule responsibly they must have 
knowledge and information about the handling of our economy.
  Unfortunately, the American people are denied the basic information 
they need on one of the most important pillars of our economy, the 
Federal Reserve.
  Today the Federal Reserve operates in secrecy. It creates money out 
of thin air, it can make purchases of questionable assets from friendly 
Wall Street firms and it can loan hundreds of billions of dollars to 
foreign governments and central banks--all out of the sight of the 
American people and even policy makers in Washington.
  It is time to lift the veil of secrecy by passing H.R. 459, the 
Federal Reserve Transparency Act.
  This bill will allow for a thorough audit of the Fed, including 
transactions with foreign governments, central banks and the decision 
making process in setting monetary policy.
  We should never fear transparency in a free society--it is vital--and 
we should embrace it. Today I urge my colleagues to join me in 
supporting this bill which provides for a long overdue audit of the 
Fed.
  Mr. TIPTON. Mr. Speaker, the ability to provide oversight of the 
Federal Reserve's dealings is hindered by current law that prohibits 
the Government Accountability Office from auditing aspects of the 
Bank's activities including monetary policy matters and transactions 
with foreign entities. H.R. 459 would remove these and other 
restrictions on GAO audits of the Federal Reserve, increasing 
transparency.
  It defies common sense that there is currently no full oversight over 
the Federal Reserve, which sets the monetary policy that impacts every 
American citizen and holds a balance sheet of $3 trillion. H.R. 459 
will increase transparency of the Federal Reserve by allowing a full 
audit of all aspects of the bank's dealings including the decision-
making behind its monetary policy. The ability to fully audit the 
Federal Reserve is long overdue, and this bill is a victory for all who 
strive for a more transparent government.
  Mr. MICA. Mr. Speaker, I rise in strong support of legislation that 
will provide greater transparency within our Federal Reserve System.
  H.R. 459, the Federal Reserve Transparency Act, requires an audit of 
that agency. As a cosponsor, I urge my colleagues to join me in voting 
for this crucial piece of legislation. In order to get our financial 
house in order, we must take all necessary steps to ensure the Federal 
Reserve, which sets the conditions for the free market to thrive; is 
operating in the most efficient manner possible. The auditing of the 
Federal Reserve is the first step in inspecting this important level of 
government for financial and regulatory waste and inefficiency.
  It was recently revealed that the New York District Federal Reserve 
had previous knowledge of dangers threatening our financial markets 
before the financial market collapsed in 2007. The New York Fed, led 
then by Treasury Secretary Timothy Geithner, had knowledge that certain 
rates were being manipulated but failed to act. Auditing the Federal 
Reserve will pinpoint responsibility, foster accountability and provide 
Congress and the American people with transparency over this powerful 
Federal entity. Our Nation's central bank should not be exempt from 
financial audit, especially with the immense financial power it 
controls. In its hands lies the fate of our country's financial 
stability.
  As I have worked to uncover waste throughout government as Chairman 
of the House Transportation Committee and as a senior member of the 
House Oversight and Government Reform Committee, I must insist that our 
Nation's financial operators be subject to the same level of scrutiny. 
An audit is the first positive step in that direction, and I will 
continue to work for passage of the Federal Reserve Transparency Act.
  Mr. RYAN of Wisconsin. Mr. Speaker, in response to the recession and 
financial crisis, the Federal Reserve had to take a variety of 
unorthodox measures to stabilize our credit markets and resuscitate the 
economy. Many in Congress have felt unease as the Fed took emergency 
actions to rescue individual companies and launched a variety of new 
credit facilities for an increasing number of banks, financial 
institutions and even investors. I share this unease and I believe that 
Congress should have the ability to gather information about the Fed's 
actions. That is why I voted in favor of H.R. 459, the Federal Reserve 
Transparency Act.
  However, I do want to register my caution about opening up the Fed's 
monetary policy deliberations and actions to a government audit as it 
could erode the Fed's political independence. Even the appearance of 
politicians gaining some measure of influence over monetary policy 
decisions could have disastrous consequences. Political independence is 
not simply a luxury for our central bank. It is a core principle of 
good economic policy that yields real benefits for the American people. 
A number of empirical studies have shown that countries with 
independent central banks tend to have steadier economic growth and low 
and stable rates of inflation. This is not surprising. Just as 
politicians involved in fiscal policy have a bias toward greater 
spending, monetary policy influenced by politics would have a bias 
toward looser credit over the short term and therefore higher rates of 
inflation over the longer term. Financial markets would immediately 
recognize this and push up our borrowing rates and weaken our currency.
  Congress should strive for robust oversight of the Fed, but it must 
guard against political interference. In the end, an independent 
Federal Reserve with a clear and focused mandate is the best way to 
achieve the desirable ends of sustainable economic growth, job 
creation, and low inflation.
  Mr. GEORGE MILLER of California. Mr. Speaker, while I fully believe 
that the Federal Reserve is in need of greater transparency and 
accountability, I rise in opposition to this bill, which I believe 
approaches the issue in a problematic way. I want to be clear that the 
Fed should not take my vote against this bill as a vote of confidence.
  In order for the Federal Reserve to function properly as an 
independent central bank, I believe that its monetary policy functions 
must be independent of pressure from Congress, which would be 
jeopardized by a GAO audit of the Fed's monetary policy. We've seen 
recently the harmful impact that congressional pressure can have on the 
Fed's monetary policy even without this audit, such as Republican 
members of Congress urging the Fed to take no further actions to rescue 
the economy, which is why I bring to my colleagues' attention the below 
column by former Federal Reserve Vice Chairman, Alan Blinder, in which 
he points out additional options for the Fed to tackle the elevated 
unemployment rate that are not being used.
  That said, it is clear that cultural change is needed at the Federal 
Reserve, which has too often put the needs of America's biggest banks 
ahead of the interests of the American public. As just the latest 
example, JP Morgan Chase CEO, Jamie Dimon, has refused to resign from 
the board of the New York Federal Reserve Bank, despite the fact that 
the New York Fed is investigating misbehavior at JPMorgan Chase's Chief 
Investment Office that contributed to its recent multi-billion dollar 
trading loss.
  Furthermore, I strongly supported a provision in the Dodd-Frank Act 
that has increased transparency at the Fed, providing for an audit of 
the emergency financial assistance provided by the Fed during the 
financial crisis, as well as requiring the Fed to release information 
going forward about parties participating in emergency lending programs 
and the details of those transactions. The bill also importantly 
limited the power of bankers like Mr. Dimon who serve on the boards of 
regional Federal Reserve Banks.
  There is one aspect of today's bill that I strongly support, the 
provision of this bill added in committee by Mr. Cummings, which 
provides for an audit of the Independent Foreclosure Review, which has 
been grossly mismanaged by the Fed and the Office of the Comptroller of 
the Currency and does not appear to be on track to provide appropriate 
compensation to homeowners who were abused. I believe that the Fed 
needs to know that their role is to look out for the American public, 
and I hope they hear that loud and clear today.

                How Bernanke Can Get Banks Lending Again

                          (By Alan S. Blinder)

       If the Fed reduces the reward for holding excess reserves, 
     banks will have to find something else to do with their 
     money, like making loans or putting it in the capital 
     markets.
       The U.S. economy could use another boost, and it won't come 
     from fiscal policy. Can the Federal Reserve provide it?
       Chairman Ben Bernanke keeps insisting that the central bank 
     is not out of ammunition, and in a literal sense he is right. 
     After all, the Fed has not yet exhausted its bag of tricks. 
     It is still twisting the yield curve. It can purchase more 
     assets. It can tell us that its federal funds target interest 
     rate will remain 0-25 basis points beyond late 2014. It

[[Page 12018]]

     can even nudge the funds rate down within that range. The 
     operational question is: How powerful are any of these 
     weapons?
       Let's start with Operation Twist, which was recently 
     extended through the end of this year. The Fed seeks to 
     flatten the yield curve by buying longer-term Treasurys and 
     selling shorter-term ones. And it's probably succeeding--a 
     bit. But Federal Reserve activity in the Treasury markets is 
     modest compared with the vast volume of trading. 
     Realistically, the U.S. yield curve is probably influenced 
     far more by daily developments in Europe. In any case, the 
     Fed will be out of short-term Treasurys to sell by December.
       The logical next step would be more quantitative easing--
     QE3--or, as the Fed likes to call it, more large-scale asset 
     purchases. Purchases of what? There are two main choices. One 
     is Treasurys. But does anyone really think that lower U.S. 
     Treasury rates are what this country needs?
       Mortgage-backed securities (MBS) are a better choice, the 
     idea being to reduce mortgage rates by shrinking the spread 
     between MBS and Treasurys. But mortgage rates are already 
     falling toward 3.5%. With 10-year expected inflation around 
     2.1%, can a 1.4% real interest rate be deterring many 
     prospective home buyers? No, they are shut out of the market 
     by the unavailability of credit. Posted rates are low, but 
     try getting a mortgage.
       The third available weapon is what the Fed calls ``forward 
     guidance''--that is, indicating (please don't say promising!) 
     that the 0-25 basis points funds rate will be maintained for 
     years to come. The Fed's current guidance (please don't call 
     it a pledge!) extends ``at least through late 2014.'' While 
     that's pretty far into the future, the Fed could stretch it 
     to 2015, 2016 or 2025 for that matter.
       In rational models, the yield curve should flatten a bit 
     every time the Fed pushes that date out further. But the key 
     words here are ``rational'' and ``a bit.'' To most bond 
     traders, two and a half years is already an eternity. Would 
     they really respond much if 2015 replaced 2014?
       This brief analysis paints a pretty grim picture: The Fed 
     has three weak weapons, one of which will be exhausted by 
     year's end.
       Fortunately, there is more the Fed can do. I have two out-
     of-the-box suggestions to make, one in today's column and 
     another in a companion piece soon.
       The simpler option is one I've been urging on the Fed for 
     more than two years: Lower the interest rate paid on excess 
     reserves. The basic idea is simple. If the Fed reduces the 
     reward for holding excess reserves, banks will hold less of 
     them--which means they will have to find something else to do 
     with the money, such as lending it out or putting it in the 
     capital markets.
       The Fed sees this as a radical change. But remember that it 
     paid no interest on reserves before the 2008 crisis and, not 
     surprisingly, banks held practically no excess reserves then. 
     In early October of that year, Congress gave the Fed 
     authority to pay interest on reserves, which it promptly 
     started doing. When the Fed trimmed the federal funds rate to 
     its current 0-25 basis-point range in December 2008, it also 
     lowered the interest rate on reserves to 25 basis points, 
     where it has been ever since.
       My suggestion is to push it lower in two stages. First, 
     test the waters by cutting the interest on excess reserves 
     (in Fedspeak, the ``IOER'') to zero. Then, if nothing goes 
     wrong, drop it to, say, minus-25 basis points--that is, 
     charge banks a fee for holding their money at the Fed. Doing 
     so would provide a powerful incentive for banks to disgorge 
     some of their idle reserves. True, most of the money would 
     probably find its way into short-term money-market 
     instruments such as fed funds, T-bills and commercial paper. 
     But some would probably flow into increased lending, which is 
     just what the economy needs.
       The Fed has steadfastly opposed this idea for years. Why? 
     One objection is true but silly: Lowering the IOER might not 
     be a very powerful instrument. No kidding. Are there a lot of 
     powerful instruments sitting around unused?
       The other objection is that making the IOER zero or 
     negative would push other money-market rates even closer to 
     zero than they are now, thereby hurting money-market funds 
     and otherwise impeding the functioning of money markets. My 
     answer two years ago was that we have more important things 
     to worry about. My answer today is that it has mostly 
     happened anyway: U.S. money-market rates are negligible.
       It is noteworthy that the European Central Bank just jumped 
     ahead of the Fed by cutting the rate it pays on bank deposits 
     to zero--and European money markets did not die. Denmark's 
     National Bank went even further, dropping its deposit rate to 
     minus 20 basis points. Yet the Little Mermaid still sits in 
     Copenhagen harbor.
       The Fed's hostility toward lowering the interest on excess 
     reserves is almost self-contradictory. When Mr. Bernanke 
     lists the weapons the Fed plans to use when the time comes to 
     tighten monetary policy, he always gives raising the IOER a 
     prominent role. His reasoning is straightforward and sound: 
     If the Fed makes holding reserves more attractive, banks will 
     hold more of them. Why doesn't the same reasoning apply in 
     the other direction?
       But suppose it doesn't work. Suppose the Fed cuts the IOER 
     from 25 basis points to minus 25 basis points, and banks 
     don't lend one penny more. In that case, the Fed stops paying 
     banks almost $4 billion a year in interest and, instead, 
     starts collecting roughly equal fees from banks.
       That would be almost an $8 billion swing from banks to 
     taxpayers. There are worse things.
       Mr. Blinder, a professor of economics and public affairs at 
     Princeton University, is a former vice chairman of the 
     Federal Reserve.

  Ms. HIRONO. Mr. Speaker, I believe that transparency in the 
activities of government is extremely important and that we should 
endeavor to let in more sunlight, not less. Therefore, I am proud to 
support H.R. 459, the Federal Reserve Transparency Act.
  The financial crisis of 2007-2008 cost nearly $6.5 trillion in 
household wealth. That's home equity and savings for retirement and 
college that millions of people will likely never get back. Between 
December 2007 and early 2010 8.7 million jobs were lost--Including a 
record-breaking 779,000 in January of 2009 alone.
  I raise these frightening numbers to illustrate a point--the impact 
of the financial crisis was disastrous, widespread, and occurred very 
quickly.
  As a result, unprecedented steps were taken to halt the disastrous 
decline in our economy. These included the Federal Reserve (the Fed) 
stretching its emergency lending authority farther than it ever had to 
before. This, along with the legislative actions of Congress and the 
efforts of the Bush and Obama Administrations, helped to prevent the 
``Great Recession'' from instead becoming ``The Great Depression 
Redux.''
  The Obama Administration and Congress have worked to rebuild our 
economy. Over 4.4 million jobs have been created over the past 28 
consecutive months. The American automobile industry has been saved and 
is prospering. Communities across the nation benefitted from 
investments in transportation, energy, and other vital areas from the 
American Recovery and Reinvestment Act. The Fed has also contributed to 
this effort by keeping interest rates low and other measures.
  But progress has not been fast enough. We are all frustrated by the 
current state of affairs. We are also rightly frustrated at the conduct 
of banks and bankers--private sector bankers and central bankers alike.
  I recognize that the actions of the Fed are subject to Congressional 
oversight and audits by the Government Accountability Office. I was 
proud to support the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, which included needed reforms of the Fed's emergency 
lending authority, and required that the Government Accountability 
Office conduct an audit of the Fed's emergency lending programs.
  These are much needed steps. While I don't share the view that we 
should abolish the Fed, or that the Fed's activities are necessarily 
malicious, I do believe that the American people have a right to know 
how decisions about interest rates and other policies that impact their 
day-to-day lives are made.
  The recent revelations that major international banks colluded to set 
the London Inter-Bank Offered Rate (LIBOR), which is an influential 
global interest rate, indicate that it is in the public interest to 
more closely scrutinize the activities of both financial market players 
as well as those that are supposed to be the unbiased referees like the 
Fed.
  Today's bill is a positive step toward doing that and I am proud to 
support H.R. 459.
  Mr. BACHUS. Mr. Speaker, I rise in qualified support of H.R. 459, the 
Federal Reserve Transparency Act of 2012. Before addressing the merits 
of the legislation, I want to pay tribute to its author, the gentleman 
from Texas, Mr. Paul, who serves as the Chairman of the Financial 
Services Committee's Domestic Monetary Policy Subcommittee. His 
tireless advocacy on monetary policy issues and his crusade for a more 
open and transparent Federal Reserve have been hallmarks of his 
congressional career. With that career coming to a close at the end of 
this Congress, it is appropriate that the House consider this bill.
  H.R. 459 is bipartisan legislation which will help promote greater 
public understanding of the Federal Reserve's operations and the impact 
of its decisions on average Americans. A more transparent central bank 
will be more accountable for its decisions, which have broad 
consequences for the American economy, including consumers, savers and 
small businesses. By de-mystifying the Federal Reserve, we can enhance 
public confidence in the institution and help address some of the 
legitimate questions the American people have in the wake of the 
extraordinary measures that the Fed took at the height of the financial 
crisis, which have resulted in a tripling of the size of the Fed's 
balance sheet since 2008.

[[Page 12019]]

  To his credit, Chairman Bernanke recognized the need for the Fed to 
improve the transparency of its operations early on in his tenure, and 
under his leadership, the Fed has made significant strides in this 
area. Among other initiatives, the Chairman now holds quarterly press 
conferences, giving the American public an insight into his thinking on 
the state of the economy and the basis for monetary policy judgments 
that would have been unheard of under past Fed Chairmen. The Fed has 
also achieved a greater level of clarity in policy statements issued by 
the Federal Open Market Committee, and has become much more explicit in 
its targeting of inflation.
  While these are welcome developments for which Chairman Bernanke 
should be commended, in a representative democracy, maximum 
transparency is essential to maintaining the trust of the governed. If 
we err, it must be on the side of the public's right to know. By 
removing certain statutory limitations on the current authority of the 
Government Accountability Office (GAO) to audit the Fed's operations, 
H.R. 459 builds on the reforms that Chairman Bernanke has instituted 
and will make for a more open and accountable central bank, which is a 
goal we all share.
  Having said that, no legislation is perfect, and there is one aspect 
of this bill that, if not carefully implemented, runs the risk of 
undermining the Fed's political independence. Specifically, the bill 
would authorize the GAO to audit the Federal Reserve Board's 
``deliberations, decisions, or actions on monetary policy matters,'' 
thereby removing a limitation that was imposed on the GAO when it was 
first given statutory authority to audit the Fed in 1978. Proponents of 
expanding the scope of the GAO's audit authority cite the 
unconventional policy interventions carried out by the Fed in recent 
years in its attempt to stabilize the financial system and stimulate 
the economy as justification for a more robust congressional role in 
overseeing the central bank's operations. It should be noted, however, 
that the inclusion in the Dodd-Frank Act of reforms first proposed by 
Financial Services Committee Republicans that significantly curtail the 
Fed's emergency lending authorities under section 13(3) of the Federal 
Reserve Act go a long way toward addressing concerns about the Fed's 
ability to conduct rescues of individual financial institutions without 
the review and approval of Congress.
  As a general matter, I worry that the level of congressional scrutiny 
authorized by H.R. 459 may, if not exercised cautiously and 
responsibly, be incompatible with the need to insulate the Fed from 
political pressures and ensure that its decisions are based on sound 
economic principles rather than on jaw-boning from Capitol Hill. I am 
therefore sympathetic to Chairman Bernanke's argument--which he made in 
recent testimony before the Financial Services Committee--that a 
central bank that operates free of such political influence is likely 
to produce better economic outcomes and a more stable interest rate 
environment.
  Indeed, the danger of allowing political considerations to guide 
monetary policy judgments was on full display at a recent hearing in 
the other body, where one of the Senators, citing Congress' inability 
to reach consensus on how to jump-start our anemic economic recovery, 
loudly urged Chairman Bernanke to ``get to work'' and implement a more 
aggressive monetary easing. This kind of rhetoric underscores the need 
for the GAO to exercise its expanded audit authority under H.R. 459 
prudently, and to resist any efforts by Members of Congress to use this 
new tool to influence decisions on monetary policy. Failure to protect 
the central bank's independence from such political pressure will have 
dire consequences for our economy and for the legitimacy of the Federal 
Reserve as an institution.
  Concerns about the scope of GAO's audits of monetary policy 
deliberations were never aired in the Financial Services Committee 
because of a decision by the House Parliamentarian to refer H.R. 459 
exclusively to the Committee on Oversight and Government Reform. This 
referral, which Dr. Paul and I challenged at the time in extensive 
written correspondence and in meetings with the Parliamentarians, 
ignored decades of past precedents recognizing the Financial Services 
Committee's jurisdiction over legislative proposals affecting the 
Federal Reserve's conduct of monetary policy. While the Parliamentarian 
ultimately granted the Financial Services Committee a sequential 
referral of H.R. 459 after it had been reported to the House and 
scheduled for floor consideration, the initial referral to the 
Committee on Oversight and Government Reform short-circuited the 
legislative process and denied Members of the Financial Services 
Committee, including Dr. Paul, an opportunity to fully debate the 
important issues of Federal Reserve transparency and independence 
raised by this legislation.
  Again, I commend Dr. Paul and Chairman Bernanke for their efforts to 
bring greater transparency to the Fed's operations.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from California (Mr. Issa) that the House suspend the rules 
and pass the bill, H.R. 459, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. CUMMINGS. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this question will be postponed.

                          ____________________