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"No Right to Know": A Wall Street Financial Site's Attack on Congress and Ron Paul
Nov. 23, 2009
Wall Street is an economic extension of the big banks, which are the government-protected segment of a government-created cartel: the national bank system. The government controls entry into this cartel, thus offering above-market rates of return to those who are approved.
The primary enforcer of this cartel is the Federal Reserve System. The FED provides the fiat money that in turn provides banks with reserves to lend. It also serves as the lender of last resort -- officially, to the government; operationally, to the banks. This keeps the largest banks from having to face free market competition.
We can use this syllogism: As goes the Federal Reserve System so go the big banks. As go the big banks, so goes Wall Street.
Wall Street is hostile to any suggestion that the U. S. government has any legitimate authority to audit its creation: the Federal Reserve System. The government's authority must be limited to enforcing the barrier to entry in banking. Anything beyond this is conceptually and operationally illegitimate. This is the party line of the Wall Street establishment. It has been since before the creation of the FED in 1913. The Federal Reserve was the joint product of a mutually beneficial alliance between the Morgan bank and the largest Rockefeller bank. The story of this alliance is here
The Federal Reserve System has been described as the Temple. That is because, ever since 1914, it has been sacrosanct: above politics and above the law. It has also been the inner sanctum. No unauthorized person is allowed to open its door.
Congressman Ron Paul dared to introduce a bill, H.R. 1207, that would require an audit of the FED by a government agency. The House of Representatives agrees with him. He got over 300 co-signers of the bill. Barney Frank at first tried to bottle it up in committee. Then he tried to substitute a watered-down version. The committee voted for Paul's version last week. This was a palace revolt against Frank. This does not happen often in any committee.
This is the first bill in Paul's long career that has had widespread support. This indicates that the Federal Reserve, for the first time since 1914, has serious opposition in Congress. This in an historic event. The FED can no longer presume that Congress will treat it with kid gloves.
The Wall Street establishment understands the threat.
In assessing Ron Paul's career and recent effort to audit the Federal Reserve, he began with an apocryphal story about insane asylum inmates.
There is a rumor that has been around Hollywood for decades that some of the greatest silent film comedy scripts were created by screen writers who would bribe wardens at a local insane asylum to allow a patient to sit in on their story meetings. Allegedly, some of the most hilarious moments in the history of comedic cinema came out of ideas from the minds of people who spent all of their time on locked wards. Even the craziest person in the world can give birth to an idea which is both brilliant and intelligible.
To begin an analysis of a serious piece of legislation with an unrelated story that is obviously nuttier than the alleged inmates gives an indication of the seriousness of Mr. McIntyre's critique.
Mr. McIntyre continued:
Paul came up with the idea some time ago that the activities of the Federal Reserve are conducted in secret and that the public should have the right to know how, when, and to whom the nation's central bank lends it money. He has finally convinced enough of his peers about the validity of his concerns. Now, the Financial Services Committee has approved an amendment to allow government auditors the right to look at the entire balance sheet of the Federal Reserve. Paul's quest to bring down the Fed has finally gotten to the point at which the Board of Governors needs to be concerned.
He's got that right! This is Paul's position, and the Board of Governors is extremely concerned.
Paul's amendment is part of a larger bill that intends to deal with the consequences that any future failure of large banks might have on the global credit markets. His program for the Fed may set a precedent that will serve as a model for the entire financial services industry.
To "set a precedent" means to begin a new era. H.R. 1207 is indeed a precedent. It marks the first time since 1914 that a branch of Congress has asserted its statutory authority over its own creation. The legal right to audit is an assertion of legal authority. The Board of Governors sees this.
The Fed's argument against Paul's proposal is simple and defensible. The agency keeps important secrets including which large banks need substantial amounts of money during hard times. The public cannot know these details because it would cause a national panic. What if it was common knowledge that Citigroup (NYSE:C) had borrowed $100 billion in emergency funds from the agency? Citi's stock could lose 90% of its value in a day. The Fed wants to keep secrets to prevent runs on major banks. The Fed, its defenders would argue, is the home to impartial financial minds that have the best interests of the nation's credit system at heart. The average person would not be able to stand the strain of watching the agency's daily high wire act up close, certainly not during a crisis.
Let me summarize. The Federal Reserve System has always had the right to conduct secret bailouts of big banks that are in fact insolvent, and whose senior managers are being paid millions of dollars a year to deceive depositors, shareholders, and creditors. This must not be changed.
Paul's logic, as it applies to the Fed, will probably end up being part of a banking system overhaul that will tempt Congress to have audits of private banks made public as well.
The bill implies no such thing. It says only that an agency created by the U.S. government is under the authority of the U.S. government. This is intolerable, says Mr. McIntyre. Secrecy is basic to all government. There is a fundamental right of selected government bureaucrats -- self-selected -- not to have their decisions supervised by Congress, audited by Congress, or in any way known by Congress.
Public companies and government agencies have a history of defending secrets that goes back to well before the founding of the modern Federal Reserve and SEC. This secrecy is based almost exclusively on the premise that a typical shareholder is too stupid to understand the complexity of balance sheets, cash flow statements, and profit and loss reports. The information has to be put through a sieve before it can be released beyond the CFO's office and the audit committee of the board of directors.
Mr. McIntyre has come to the defense of every government bureaucrat who ever wanted to hide a payoff, create a boondoggle for a company he was associated with, or run an illegal operation.
This position is the ultimate rejection of democracy: the public's right to know where the money extracted by taxes has gone. Mr. McIntyre faithfully represents the position of Ben Bernanke and all defenders of the Federal Reserve.
Mr. McIntyre is articulating the government's core operating assumption: the right to deceive the public without interference. Not many defenders of unrestricted government power ever go this far in full public view. We owe a debt of gratitude to Mr. McIntyre. He told it like it is.
Paul's reason for wanting the Federal Reserve to open its kimono is that the public and members of Congress can understand the details of how the agency works without the help of a math, economics, or physics professor. The public and Congress should be able to influence the Fed because it uses public money and may be putting that capital at unnecessary risk.
He's got that right! And does this upset Mr. McIntyre and his pro bono client, Ben Bernanke.
The flaw in the thinking about an "open Fed" is that most elected officials and average citizens are too stupid to understand the Fed. They don't have an IQ problem, but they do suffer, in most case, from a lack of education about complex fiscal policy, macroeconomics, and game theories of John Forbes Nash who was himself schizophrenic. In other words, the Federal Reserve management and staff perform a function that most people cannot possibly understand in any detail. Citigroup may need $100 billion for a week. That does not mean it is going out of business, or, if it is, the Fed knows enough to call the Treasury Secretary immediately.
I suppose he would apply the same reasoning to the jury system, and draw the same conclusion.
Congress can hire economists to interpret the data. It does so with respect to NASA or any other government-funded operation. The point is this: the hired experts must have full access to the financial data in order to make their assessment.
Mr. McIntyre is not a skilled logician. He treats his readers as if they were idiots. He is contemptuous of them. He is trying to put the shuck on the rubes.
It is not entirely unfair to compare what goes on inside the Federal Reserve with what happens at the CIA, FBI, or some parts of the Defense Department. Secrets are not, in and of themselves wrong, if they protect something in the national interest.
So, the Federal Reserve System is comparable to agencies that prosecute criminals and terrorists. But what if the FBI, CIA, or the Defense Department were in fact acting as the legal cover for criminals? What the FBI were actually putting up the money -- not as a sting operation, but as the money behind the operations? Would Congress have the right to know?
Paul wants to raise the nation's financial mansion and leave a vacant lot. It could be especially dangerous for this to happen, especially in a time of fiscal crisis.
Paul wants to make sure that the government can follow the money -- the money created by the Federal Reserve System under the legal authority of the U.S. government. Mr. McIntyre wants to keep the government from doing this. He is not alone. Wall Street has offered no support for H.R. 1207.
Mr. McIntyre has stated the case boldly and baldly. It is the case for a cartel of banks whose largest members can tap into the funds of the Federal Reserve, as well as receive T-bills in exchange for toxic assets at face value. To suggest that this government-created agency should be audited by the government that created it and maintains its immunity from competition is to propose a vacant lot.
This is what passes for a defense of capitalism on Wall Street.
Douglas A. McIntyre is not a skilled user of rhetoric. He is surely not aware of logical cause and effect.
My guess is that Dr. Bernanke would not be happy with this defense of Federal Reserve autonomy. To argue that Congress is filled with economic dolts is fun for those of us on the fringes of politics. To have a Wall Street publication make this case on his behalf is not the best strategy, now that the House will be voting on H.R. 1207.