House Financial Services Chairman Rep. Barney Frank, Massachusetts Democrat, said he expects former GOP presidential candidate Ron Paul’s legislation to audit the Fed to pass out of his committee in October as part of a larger regulatory package.
Rep. Paul’s, Texas Republican, bill if added to Mr. Frank’s other proposed reforms could give a boost to a financial regulation package the Obama Administration wanted to pass last spring. The Fed bill has 282 co-sponsors, including every Republican member of the House and a considerable number of Democrats. The Senate’s lead sponsor of the bill is Sen. Bernard Sanders, a Vermont independent and self-described socialist.
Today, the Government Accountability Office has no power to audit the Federal Reserve. Mr. Paul’s bill would empower the government watchdog to do so and make their findings available to the public.
Mr. Frank was asked at a town hall meeting when he would put the bill up for a vote in committee and after giving a lengthy explanation of current problems with the Federal Reserve Mr. Frank said he was working with Mr. Paul and that, “This will probably pass in October.”
Below is a transcript of Mr. Frank’s remarks. Also, see video below.
FRANK: I have been pushing for more openness from the Fed back when the Democrats were in power…Here’s what we plan to do: I want to restrict the powers of the Federal Reserve in a number of ways.
First of all, the Fed will be the major losers of power if we are successful, as I believe we will be, setting up that financial product protection commission. The Federal Reserve is now charged with protecting consumers. They were supposed to do subprime mortgage restrictions, Congress in 1994 gave the Federal Reserve powers to adopt rules to ban subprime mortgages. Alan Greenspan refused to do it, he said there was too much market intervention. They had the power to ban credit card abuses, they have the power to do [undiscernable] They, under Greenspan, they did nothing. But under Bernanke they started to do things but only after Congress started. When I became Chairman of the committee we began to act on these things, subprime mortgages, credit cards, overdraft and every case we started after the Fed did. That’s one of the reasons why in the new consumer protection agency, we will take away from the Federal Reserve the power to go consumer protection.
Secondly, they have has since 1932 a right under Herbert Hoover, under a Democratic Congress combined, a right that they haven’t used until recently to intervene in the economy almost whenever they could. Last September, the Federal Reserve came to us and said that they were going to advance $82 billion to AIG. I was kind of surprised and said, ‘You have $82 billion?’ Mr. Bernanke replied, ‘I have $800 billion’ and under section 13.3 of the Federal Reserve Act they can lend money to anything they want.’
We are going to curtail that lending power. We are going to put some restraints on it.
Finally, we will subject them to a complete audit. I have been working with Ron Paul, who is the main sponsor of that bill. He agrees that we don’t want to have the audit appear as if it influencing monetary policy as that would be inflationary and Ron and I agree on that. One of the things the audit will show you is what the Federal Reserve buys itself. And that will be made public, but not instantly because if that it was made instantly you would have a lot of people trading off that and it would have too much impact on the market.
Again, Ron agrees on that so we will publicly have that data released after a time period of several months, enough time so it wouldn’t be market sensitive. That will be part of the overall federal regulation that we are redacting.
QUESTIONER: By the end of the year?
FRANK: This will probably pass in October.
[Note: The transcript has been updated to include Mr. Frank’s full remarks.]