tv Nancy Grace HLN September 26, 2009 3:00am-4:00am EDT
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futures or or loaning gold? >> we used a trustee for some of the gold stocks of foreign central banks. it holds the gold but it does not conduct transactions. that is done by the foreign central bank. >> you have no evidence that our reserve has ever been involved, even the gold market it? >> i confess to not being an expert in transactions we might have done in gold. we can get to that information. >> i am suggesting to find out whether we have been involved in doing the work that we want to do. that is why i think the full audit is necessary. i'm willing to yield back. >> mr. grayson from florida is recognized.
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>> has the federal reserve ever tried to manipulate the u.s. stock market? >> no, sir, not that i am aware of. >> and not that you are aware, but you are the chairmen. >> i would expect to know if something like that were being done. >> you'd be bound by attorney/client privilege in do not be allowed to tell us. right? >> so we agree that any part dissipation -- any participation [unintelligible] >> the federal reserve does have the ability to produce a paper in certain markets in certain ways. >> [unintelligible] >> your question is so over-
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broad that i do not know where to begin. >> i would like you to tell me if it is within the federal reserve's authority to manipulate the market. >> i didn't believe that it tries to -- >> tries? c'mon. do they? >> they tried to influence interest rates to maximize employment and stabilize prices. >> if they were doing that, is that not something we would want to know? >> to the extent that it influences interest rates, it does make an announcement to that immediately. >> that is not what i am saying. >> if it manipulated the stock market -- the stock market or the futures market, would we not want to know? >> would you please explain what
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you mean -- >> i think you know what i mean. >> i don't know what it is you are seeking to audit, sir. >> does the federal reserve actually possess all the gold that is on the balance sheet? >> yes, sir. >> has that been ordered by the gao. >> i believe in is in their authority to audits. it is something that our independent accountant is capable of doing and does. >> [unintelligible] >> to audit the presence of the golden the facilities? i find no objection to that. >> people execute the trades in their reserve market -- who actually does that. who execute the trades of the federal reserve in the market? >> i have not heard any allegations of her from running -- >> if anybody would know that, you would know that. >> the federal reserve bank of
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new york is responsible for effecting the transactions implementing monetary policy. >> ok. so answer the question. >> the federal reserve bank of new york. >> that is your answer? >> you want to know who it implements -- >> you do not delegate that to anyone else? >> no. it is a process where there are several steps. the federal bank of new york processes transactions through primary dealers. truck>> who were the primary de? >> jpmorgan chase. >> can you audit -- deal mind if we audit the gao to see if they are from running? >> payam knocked -- i am not --
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i do not have their 32 -- i do not have the authority to do that. >> you are the primary council. >> do you not think it would be have a good idea for the gao to look into the accounts? >> a specific loan from the federal reserve to a specific entity would be subject to gao audit. we do not oppose that. >> the fed has given $1 trillion. that is as much as it has
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reduced from its balance sheet. who got the money? >> most of the increase in our balance sheet has been in the purchase of u.s. government securities and the purchase of agency karen t. securities in the open market from -- of agency securities in the open market. >> your time has expired. >> we need to ask these questions and the only way to get the answers is to have the gao audit the federal reserve. >> the gentleman from california. >> thank you. the economists who did studies about business cycles came to the conclusion that central banks really have a tendency to
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extenuate or exacerbate those business cycles. looking back at what the fed did in 2002 through 2006, by setting negatiev real interest rates -- negative real interest rates, it would match to the thesis that he always put forward. this thesis is that it has a tendency to set interest rates too low from time to time. it would create these assets bubbles, a housing bill in this case. looking back, when you look at what the fed did during that time and what the central bank's bid to follow suit, would you say that that is one of the reasons that we had such a balloon in the housing market? >> congressman, as a lawyer,
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there is a good reason why they do not allow me to participate in monetary policy. i can give you an answer to that. >> we had a hearing here yesterday and we listen to paul volcker. he criticized president obama's administration plan to have stronger regulation by the federal reserve. looker said -- paul volcker said yesterday that such a designation would imply government readiness to support the firms in a crisis, encouraging even more risky behavior in a phenomenon known as moral hazard. would you like to comment on poehler's opposition to having the fed walked down this road with the administration --
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comment on paul low-carb's opposition to having the fed walk down this road with the administration -- paul volcker's opposition to having the fed walk down this road with the administration. >> there's too much of the public believe that some institutions are too big to fail. so some has already exist. we are asking for to revisions. one is a new resolution regime or resolution authority. that helps offset moral hazards by making it clear that the government does not have to simply bailout institutions because they are afraid of them going into and a disorganized bankruptcy. instead, you have a dissolution regime. that will reinstitute market discipline.
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the second thing is more strenuous regulation and supervision of those institutions that are systemically important, including enhanced capital requirements, enhanced risk management requirements, and other things. >> i am all for market discipline. but when the richmond federal reserve says that 45% of the liabilities and our financial system back in 1999 were backed by the safety net of the fed, they were basically guaranteed one way or the other by the fed, you know that number is hard- traded today could -- hard- rated today. whether you agree or not, the federal reserve became the path of least resistance for many of those bailouts. but again to the final point made by paul volcker -- but let me go to the final point made by
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paul volcker. he says the danger is that the spread of moral hazard will make the next crisis bigger. if last time you had a moral hazard problem in that there was a presumption that the fed was going to bail out 45% of the institutions, and you can conceive that it is a lot bigger than that, why would you not heed his words here and why would we not really be looking at some solutions to bring about market discipline and why would we be considering that others were right in this whole issue of the fed actually helping to compound our problems in terms of boom and bust cycles? >> we will give you a few seconds. obviously, you can respond briefly or you can do it in writing. >> the question is so
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complicated that i think that in writing would probably be better. >> the gentleman from minnesota would be next. >> i want to say that i support pol desperate to bring this legislation to the floor. before the economic and -- before the economic and financial crisis, the chairman did an interview on 60 minutes. it is only natural that a lot of people are asking questions. given your role in the bailouts, it is only natural to expect some interest in looking at this. invoking emergency powers, if you will, why should we not have -- what should congress and not have the ability to
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understand what is on the balance sheet? we are no stranger to the fact that ben bernanke's words can move markets when he speaks? why should we believe that pulling the veil back on some of the fed's activities and some of these secrets of the temple, if you will,? >> in order to allow you to have that kind of oversight, we provide substantial information about our activities and balance sheet. part of the difficulty is that we have not been as good as we should be about making clear how much information we do provide to the public. our website is filled with information about our balance sheet, which is audited by an outside accounting firm. all of our programs are explained in detail on the website. we have a monthly report that
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updates the exposures we have under the different facilities, including information about the collateral, general information about the borrower's, about the timing of the facilities, when they are intending to 11, and the protections we have gotten for the taxpayer. in the monetary policy area, we issued the decision the moment it is made, detailed minutes, shortly thereafter. the complete transcript and all the underlying members are released after a lag. there is a lot of information that we release on all of our areas of responsibility. it is not as secretive as i think it has been thought to be. it is quite a change from the days of the secrets of the temple that were referenced earlier in the day. i think you will find that information very helpful. >> knowing that the taxpayers
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surprised what is currently secret, so to speak. the law now reads under regulations of the comptroller general that he shall audit and agency but may carry out on-site examination of an open injured bank or holding company only if the appropriate agency has consented in writing. i would like your comments because we're not behalf time for you to respond to all of my questions now. i would request that you give us specific answers to that question as soon as possible. why do you think permission of another agency is necessary for the comptroller general to perform an audit?
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no. 2, current law says that audits of the federal reserve board and federal reserve bank may not include transactions for or with a foreign central bank. the government of a foreign country or private international financing organization. i would like you to answer in writing and you can do it thoroughly if you have time. i think my question will probably take the remainder of my time how can this hurt the function of the fed? if up on a daily basis, with a short cooling off period, these should not be even potentially turn of the secret actions. the next thing it does, no. 3, it shall not include abortions, decisions, or actions on monetary policy matters, including discount window operations, reserves of a number of banks, securities credit,
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interest or deposits and open market operations. it sounds to me that anyone would think that would be harmful to become public information. no. 4, transactions made under the direction of the federal open market committee. how is that information going to harm the financial security of our nation if it is no longer off-limits? finally, no. 5, a part of a discussion and communication among are between the members of the board of governors relating to the aforementioned causes one and three of the subsection. the idea that any of that must be terminally secret for the financial security -- must be a totally secret for the financial security sounds incredulous to me. you can start now if you'd like to respond to those items.
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these are the things that the bill actually talks about. we have talked about -- we have talked in some platitudes here. but that is the real basic elements of dr. paul's work. >> if i could at least address one of the points, you mentioned disclosing information about one of the bank's. >> we should probably start with number one right off the bat. why do you have to have the proper agencies commission for the comptroller general to perform an audit? >> of open banks. >> yes. >> the concern there is that disclosure of information about the operations of an open bank -- any number of banks that are not experiencing difficulties would be misunderstood and cause difficulties for the banks. a bank that is open and not work -- a bank that is open and
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operating requires the public's confidence. consulting with the primary regulator of the bank, which is responsible for examining the bank, and his reports by law are not made public is designed to make sure that misleading or mistaken information about the health of bad bank is not released. it is meant to protect the bank, which is an open institution. it is to protect that bank. >> in just a second. do you not think that, if we had some of its in public two years ago or three ago, we would not wind up in the crisis we are in now? did the secrecy not protect some of the misbehavior of the industry, do you think? >> i personally do not think that thinkgao had audited -- that if gao had audited these banks would have stopped the
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crisis better than any of their agency. >> the gentleman's time has expired. >> thank you mr. chairman. i am the co-sponsor. i hope it will proceed to the floor without be watered down too much. -- without being watered down too much. the concern of the people really has to go to what happened in september of last year when the secretary treasury came to the congress and said we need immediately, overnight, $780 billion to buy up troubled assets otherwise the world is going to collapse. not 1 cent has been spent of that money to buy troubled assets. i voted against it. members of congress are still
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wondering why they voted on it. whenever the fed gets involved, for example, like pumping money into aig, , et, is that reflected -- aig, etc., is that reflected in the federal dead? >> it shows up on the balance sheet, but it is not part of the outstanding debt. >> so is monetized. you just print money. is that correct? >> not exactly. this is an area, again, where i am not an expert. the federal reserve does a variety of transactions to support its lending activities. it lends -- it has government securities that it can sell in order to raise the funds to make loans. but that is not monetizing the debt. >> so for all the money that has
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been pumped into these various institutions, the fed and the treasury, ostensibly, have sufficient reserves to back that up in case of collapse? >> i believe the federal reserve does, yes. >> one of the other problems is that people are really distrustful of the fed based upon the cloak of secrecy that takes place. but the areas that are of most importance, dealing with monetary policy and the discount window, are the two most important parts of the fed. on page 6 of your testimony, it
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says that congress purposefully and for a good reason choose to exclude from gao review two sensitive areas, monetary policy and federal reserve transactions dealing with foreign countries. you have actions and transactions that are excluded from gao review. it would take an active congress, what is not, in order to go under these two areas? >> yes. >> ok. that is what hr 1207 attempts to do. >> that is correct. >> the very body that sets the policy of review, would you not agree, also has the ability to change that policy? >> absolutely.
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>> they're very concerned about trying to track this money and believe that, by having more transparency, that the american people will have a better idea as to where their taxpayers' dollars are spent. we do not agree that the american people have a tremendous amount of interest in this? >> this it is certainly an area for congress to consider. we are here simply providing our views and what the ramifications would be of that kind of congressional action and we are concerned about the effects of making the change that 12 07 would make. but it is clearly a decision for the congress. >> i want to thank you for your time. and your demeanor. >> thank you. >> thank you. >> i want to thank mr. alvarez for his time.
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[unintelligible] there are fairly small steps for the that we need to complete this. we will know how largour next witness. mr. woods. >> thomas woods is a senior fellow in auburn, alabama. he graduated from harvard university and received his master's and ph.d. from columbia university. his written two books,
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including "meltdown, a free- market look at what the stock market collapsed." he won a prize in 2006 for his book "the church and the market." is also a contributing editor of the american conservative. i welcome -- he is also a contributing editor of the american conservative. >> let me begin this summary of my written testimony in support of hr 1207 by recalling a controversy that happened in late 2008. bloomberg news ran a headline. the article dealt with trillions of dollars in loans whose recipients and whose collateral that had been put were unknown to the american people. the editor in chief of bloomberg news, matthew winkler, stated it very simply. he said that taxpayers, and voluntary investors, have the right to know who received
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loans, in what amounts, for what collaterals, and why specific laws were made. he is right. there's no good reason for americans not to know the terms and recipients of these loans. there is likewise no good reason for them to be kept in the dark about the fed's arrangement with foreign governments and foreign central banks. these things affect the quality of the money that in our system americans are obliged to accept. this seems like common sense. what about the common arguments that have been raised against it. it would compromise the fed's independence. eventually, if we open the books, this will lead inexorably to some kind of monetary policy be exercised by congress. i think this is a red herring. the bill is not designed to have congress have any authority over setting interest rates or targets or any such thing as bad. this is part of the fed central
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planning apparatus and it is best to keep away from the fed or congress, in my judgment. all we're looking to do is open the books. congress has a moral and legal responsibility to keep tabs on and keep the public informed about the various creatures it brings into existence. so these various convoluted some areas by which merely opening the books will eventually lead to a floodgate of inflationary catastrophe at the hands of an epic congress is a little over the top. at the same time, we hear -- hands of an uppity congress is a little over the top. the fed chairman is routinely up for reappointment. he wants to ingratiate himself into the favor of the president and will accommodate him with loose monetary policy. try to imagine a fed chairman who doggedly insisted on maintaining the value of the dollar, even if it meant refusing to monetize the massive deficit to fight a war or
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conservatives, they have a different thesis in mind, which is that, for instance, goldman sachs might have more political pull the rest of us. this would only further stimulate suspicion that somebody is hiding something. it seems to me that the audit is coming. the writing is on the wall. 75% of americans polled agreed that the federal reserve should be audited. if the legislation should fail, it seems to me that we will only further stimulate interest in transparency of the fed because people who up to this time have not had interest in the issue will begin to wonder what could they be hiding. it is probably best for the fed simply to accept the audit is coming. i think that would be a more dignified way of handling the situation than what we have seen
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from the fed and thus far, which has by and large been the approach of urging americans, urging the paeons to populate the country, to quit testing their betters with all these important questions. -- to quit pestering their betters with all of these and important questions. thank you. >> mr. wood, on behalf of congress, i think for the political advice to have given us. i suspect the folks at the fed would think you for the advice that you have given them about how they should approach this issue on a substantive basis. i do not know that i have heard much year that would help us be informed about the substance of what we are here to do.
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is there anything in the bill that you are aware of that would deal with the fed did chair being reappointed? there is nothing in this bill that will address that, is this? >> no. >> i am just trying to figure out whether we are having a philosophical discussion or a substantive discussion. you mentioned opening the books. do you distinguish between an audit of the kind that most people would think of as an audit and a policy audit? or do not make that distinction? >> given that congress has delegated to the federal reserve system the power to delegate
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monetary policy, it is a creature of the federal government -- >> i understand that, mr. woods. i am asking you, for the purposes of this bill or for deciding whether to do or not do whatever we are talking about, give the authority under this bill, would you make the distinction between a policy it audit and opening the books, as you said, which would be a numbers audit? >> the reason i entered the question as i did -- >> william a distinction first and then tell me why you -- will you make a distinction first and then tell me why you answered it. >> there could be a timeline that could be negotiated -- >> that is not the question i asked. that may be the answer to the next question. to you, as a practical matter, do you make a distinction between a policy audit and a
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numbers audit? >> i would like to know the rationale that goes into these decisions. the fed is created by an act of congress and enjoys a government monopoly. there is one to be water scope and americans are going to want to insist a wider scope of an investigation of such an institution. >> in the interest of time and with the recognition that we're not want to get any substantive responses here as opposed to another political speech, i think i will just yell back. before i do that, let me ask unanimous consent to insert into the record a wall street journal article dated july 15, 2009. it is a document entitled petition for fed independence
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signed by numerous academic people. >> without objection. >> there are 75 academics supporting the fed independence. >> without objection. >> thank you mr. chairman. i would like to follow-up on an economic question regarding the secrecy of the fed. if it operates in secrecy and we do not have transparency, i would like to see if you could expand a little bit on what kind of economic consequences this has. for instance, the free-market school is well aware of the fact that business people make a lot of mistakes when interest rates are at an artificial level rather than at a market level. interest rates are not there because of savings, but because of economic policy. this is along that line, but not exactly that. does the secrecy of the fed inspire some misguided speculations? could this secrecy encourage
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more mistakes? it may not because of all of the mistakes, but could cause more difficulty? the other side tends to argue that we have to keep it secret because we do not want to shake up the market. secrecy conveys confidence. could you address that? could the opposite be true? >> i think the opposite is true. when you have secrecy, inevitably, with winds up happening, how people make their judgment as to what is really going on is on the basis of wild speculation and wild unfounded rumors. so the more transparent to you have, the less free rein is given to that kind of irrationality. the more we can be with the business community, the better. the more they can understand if this phenomenon by and seeing a real or is it because the fed manipulation? it is easier to make decisions if they can see the economy clearly. i would like to add something about the subject of
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independence. the reason i raised it is that opponents of the bill are raising this as a red herring. this is not the subject of the bill. secondly, it is not by any means getting off the subject to question whether the independents is real, whether there is already political influence on the fed. that is a totally wanted statement. i did want to say that in my defense. >> i want to touch on this addictive history. i know you are also a historian. you mention that 78% of the american people support transparency over the fed. in a recent court case, the freedom of information act, several mainstream groups support this as well. it is not just different element. dow jones has supported this effort. new york times, ap, gannett, hearst, advance publications,
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the reporters commission on free press, there are a lot of people who do support this. as i mentioned, there has been a lot of this going on for a long time. but it seems like there's something historic the important here. could you address that in a more long-term historical perspective? >> it is safe to say that since 1913, as a political issue, the fed has by and large succeeded in the politicizing itself. that -- in depoliticizing itself. the technocrats can handle this better than regular americans. that means that. most -- that is the politicians by march have not paid attention to the fed. one presidential campaign that -- that is the politicians by
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and large have not paid attention to the fed. that is until one credential campaign that i can think of. efforts have been tried in the past and have failed suggest that this is a historic moment. the arguments made against the bill are a lot of scare tactics. the federal reserve is not used to being under this kind of public scrutiny. i discount the bunch of academic economists who won about the fed's independence. without the fed's independence, it will not be able to fight inflation as effectively and monitor interest rates effectively. in other words, we just had the biggest asset bubble in the world -- in the history of the world thank you to the fed, but if they do not have independents, they will not be able to do as good a job as they have been doing. this is really shocking to take that position. it is an absurd position. it is in variants of the fact that the fed has been an in
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dealt -- has been unable work of inflation. it shows and other figures as to the cause of inflation. i recommend an article by lawrence white who is recently at george mason university. he did an article looking at how influence the fed is in various ways. >> first of all, [unintelligible] i was a strong supporter of henry gonzales in the 1980's. i have a concerted -- have asserted by a right to critique of monetary policy. [unintelligible] the central bank of the united states has a dual mandate
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whereas most centralize have a single mandate to fight inflation. the federal reserve has a mandate to worry about unemployment it will with inflation. efforts by federal reserve chairman is consistent to evade that. i have always felt that. we are having this hearing because it seemed to me an important thing for us to do. we had some other items that grab their attention earlier. i do have one specific question. on the question of making public all of their transactions, do you think that should be done instantaneously or do you think some time lapse is a proper it? >> i would not take a dogmatic position. i am certainly open to compromise on this. some type of reasonable time lag would not defeat the purpose. >> no one should be able to do
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business with the federal government in secret forever. but we do recognize that it is instantly available, if there is a market impact, that would not be desirable. it essentially, anybody who disagreed with you was bought and paid for, by whom and what was the going rate? maybe i was missing out on something. >> my point was that, if you look at -- >> you said that someone was bought and paid for. by whom? >> in some cases, by the fed itself. it has exercised a tremendous influence -- >> it is one thing to exercise influence and another to be bought and paid for. i think language is important. >> what about millions of dollars of research grants? >> my colleague has objected
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[unintelligible] in number of us will be surprised that mainstream groups want more information. they want to know battle plans. that is not mainstream. that is their own self-interest. i think that characterizing -- you said that anybody who would disagree would be bought and paid for. think that is unfortunate formulation. i think there are people on that list were not bought and paid for in any tangible sense. >> if we did a poll of the various people who were calling congressional offices on behalf of the bill, i cannot imagine that many are calling and saying, you know what? i am going to look you right out of office if you open the books of the federal reserve. >> that is totally unresponsive to what i said. why would you do that? york character -- you are characterizing all who oppose this.
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here. i had a chance to read have the book. i appreciate the book here wrote on meltdown. thank you for your input on that. i enjoyed your statement. i have enjoyed your remarks. you had asked the question in your remarks why is the fed in panic mode over the spill? why are they in panic mode over this bill? it seems that we are in an era where no politician can oppose transparency. that is what every politician is for, is transparency. this seems to be the one anomaly in all of government and it is at the fulcrum of our government and it is at the fulcrum of potentially the economic meltdown that we're still going through and have yet to recover from. when the panic? >> we can only speculate precisely because we cannot have the information.
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my suspicion is that they may be engaged in activities that they would rather not have disclosed to the light of day. the reason that i emphasize in my statement that i believed that the standard arguments being made against the audit were unpersuasive and were not grounded in the text of the bill was thereby to leave open the possibility that the real argument against the bill are not being advanced. i cannot know what those are. i have my own private speculation as to things that the fed might be doing, but i elect not to mention them here. but that is what i think. and i think -- there was an article in forbes not long ago. the title of the article was that the fed has to become boring again. the fed has been doing so many unprecedented and extraordinary things, both qualitatively and quantitatively, over the past two years that it has attracted more attention to itself and then we have seen in a very long time so it really has to stop doing that so that people go back to not paying attention to
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it anymore and not really knowing anything about what it does. i think that is the way they like to do it. i am not putting words in people's mouths. monetary affairs are best left to the technocrats. those are his words, not mine. i think this is an unusual position for the fed to be and, for the spotlight to be on it. i think this makes them unhappy and nervous. >> one thing that i am concerned about is the fed balance sheet. can the tax -- and the toxic assets remain on that balance sheet. the taxpayers will have to stop up the mess that is on that balance sheet. we do not know the identities of overnight loans and the collateral. i think that makes a lot of us very nervous. maybe everything is fine behind the curtain, but we see that a lot of things are not find and a
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lot of great financial institutions that came to the brink of collapse have collapsed. my next question would be on section 13-3 and whether or not it would be prudent for the congress to take a look at section 13-3 and tightening that up and limiting the scope of the fed's authority. it seems to me that, if we can get a full perspective of an audit, both on policy and the numbers, of the federal reserve, if we can get a full perspective of the federal reserve, what has been going on since 1913, it will be easier for us to know, it would be prudent for us to tighten up the limitations on what they can do. i was shocked. when i read the birth of the authority of the federal reserve -- when i read the birbreadth of the authority of e
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federal serve, i was shocked. what check to they have? there is no check on that authority. i think that is very frightening for the american people. i would like to comment on section 13-3. >> i support exactly what you're saying. i think it makes perfect sense to tightening these things up. i would like to clarify the way in which taxpayers get hit may not be quite direct. if the fed takes on an awful lot of toxic assets and of these assets have very low value or zero value, it impairs the fed possibility -- it impairs the fed's ability. how are they going to sell them? how will we get the money back? then we will all suffer from the inflation packs. >> the gentleman's time has expired.
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the gentleman from california. thank you. >> there's always a fight on democracy on the one hand and bureaucracy on the other. secrecy does not lead to purity. secrecy + power vehicles corruption. that is especially true over time. bj secrecy plus power equals corruption trend that is especially true of -- secrecy plus power equals corruption. that is especially true overtime. the chairman and many others in this committee have talked about needing to focus on 13-3. in number of my colleagues who are here now were not here when i questioned mr. alvarez. his answers were very scary as to 13-3. the federal reserve board has testified before that they will make only virtually no-risk
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loans under 13-3. but their general counsel testified that just about any loan and any amount would be allowed under 13-3 as long as the board felt secure. that might very well mean that they have a 51% chance of repayment. he was not all that specific. we have an agency that can now make not risk-free loans, but higher-risk loans, at least a 51%. even in a junk-bond, you have a 51% chance of being repaid. these are enormous amounts. there is no scrutiny as to how secure they are. if i gather your testimony correctly, you are saying that they have extended billions and billions of dollars of loans
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that they tell us are fully secured, but they will not reveal to congress what security have? >> that seems to be the case. -- what security they have? >> that seems to be the case. the reason -- this is the reason it has become such a mainstream issue. those who have nothing against the fed per se, believe the fed has an important role to play, but this is unacceptable from the point of view of average americans. they have a right to know what is going on with the institution that has custodianship of their money. >> even if this fed may all the right decisions for all the right reasons, if you empower any agency to make high-risk loans for risky loans on -- to make risky loans and the to tell the public that you are secure enough or will it will not tell you what security we have, but
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trust us, and they can pick one company and not another, over time, one of the things that we do is advise other countries on how to set up democratic institutions -- trust me, nobody at the state department, nobody at usaid, nobody at the dri would suggest this kind of power + secrecy, power to convey wealth to individual companies in enormous and unlimited amounts in total secrecy. the fed pause best argument against this bill is -- the fed's best argument against this bill is that the boc meetings should be kept private so that they can speak honestly. would you think that the bill would be impaired if we said you can speak freely at the effeminacy meetings -- at the fmoc meetings?
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>> i would refer to congressman paul. there are different things. there are boards of governors and different levels where we are -- we can get some information now, five years after the fact. now we know where ben bernanke stood on the interestinterest-re motion in 2003. on this, i would refer to dr. paul. >> than i yield to dr. paul. i do not know if he was listening. >> certainly, not permanently, but i would like to hear about it sunday. they claim that they release it. i would think that maybe six months worth three months would
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be reasonable. >> i look for it to working with you on this. i would hope that we can pass legislation and, if we can take away the fed pause best argument against it, that would be good. >> wait for the movie. >> i presume that one of the reasons that the federal reserve made an error on setting interest rates too low for such a long time and then other central banks followed suit was because, in the 1930's, there had been a real problem with the fed setting interest rates too tight. frankly, i think what transpired was that the fed thought that inflation would occur. they set the interest rates four years running. i asked mr. alvarez this question. i really believe that was part of what created the balloon in
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asset prices. i suspect you would agree with me. serious show the propensity of central banks to do that. -- ceres show the propensity of central banks to do that -- theories show the propensity of central banks to do that. it is the moral hazard aspect of this and the fact that we have compounded this going forward by bringing the fed in deeper and further in terms of that moral hazard challenge -- i would like your comment on that. >> this certainly. on the issue of deflation, incidently, that is the fear of the flesh and that they have to keep the interest rates low. ben bernanke, before he was fed chairman, he gave a speech in
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2002 by speaking abouabout defle spent the markets. how do we move forward from here, plausibly claiming that, listen, we bail you out up to this point. if you fail tomorrow, we cannot help you. it's an institution like the federal reserve system, -- when i get a question like this, the sediment in effect, institutionalizes this moral hazard problem. -- the fed, in effect, institutionalizes the moral hazard problem. there is at least the possibility -- greenspan was on when to let things go under. he comes to the rescue of long term capital management in 1988. do you think these firms were in the shape they were in when they were collapsing?
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it is worth asking why our equity ratios so low in the financial sector? we should ask the more fundamental question as to why they are so low. why are they solo in the shoe industry or the shell industry or the hat industry? they do not have lenders of last resort that are able to bail them out. in 2008, a report said that the financial sector is depending much too much for its liquidity problems on expected intervention by the monetary authority. this is a very significant problem, especially because, in the wake of some of the decisions that have been made, thes too big to, have become -- the two big to fails have be come even bigger. >>
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