So, you know about the Treasury’s $700 billion bailout plan. But you probably don’t know that the Federal Reserve has lent out about $2 trillion since September. Few do. And that is what’s irritating bulldog Congressman Alan Grayson.
Fed lends two trillion without oversight
By Danielle Ivory
VOICEOVER: Just in case you thought $700 billion was a lot of money, get a load of this.
January 13, 2009
House Financial Services Committee
REP. ALAN GRAYSON (D-FL): Mr. Kohn, how much has the balance sheet of the Federal Reserve increased since September 1?
DONALD KOHN, VICE CHAIRMAN OF THE FEDERAL RESERVE: It’s increased from around $800 billion to about $2 trillion.
VOICEOVER: That’s $2 trillion on top of the money being lent out by the Treasury. Lent out to whom, you ask? Well, that is a secret.
GRAYSON: And what was that money spent on?
KOHN: That money was lent to banks, investment banks.
VOICEOVER: This is Donald Kohn. He’s the vice chairman of the Federal Reserve. At a hearing on the Hill, he was reluctant to go into detail about the Fed’s recent lending.
KOHN: It wasn’t spent; it was lent.
GRAYSON: Which institutions received it? And how much for each institution?
KOHN: I don’t know which institutions, which specific institutions received it.
VOICEOVER: This is the guy who was asking the surprisingly tough questions. Meet new congressman Alan Grayson.
GRAYSON: Yeah, sure. I’m a freshman. What do I know? I guess I haven’t gotten the memo on questions not to ask and people not to question closely.
VOICEOVER: He literally just moved to Washington, and already he’s making the Federal Reserve uncomfortable.
GRAYSON: Mr. Kohn, you just said that $1.2 trillion has been lent or spent, as the case may be. That’s $4,000 for every man, woman, and child in this country. Don’t Americans have the right to know how you spent that money?
KOHN: Yes, they have every right to know the purposes for which we spent it, the types of lending that’s going on, the types of collateral we’re taking, and what we expect to accomplish with that.
VOICEOVER: But apparently, according to the Fed, Americans do not have the right to know who got the money and how much. And while Congress has been concentrating on Treasury Secretary Henry Paulson’s and now Tim Geithner’s $700 billion bailout package, Fed Chairman Ben Bernanke and almost $2 trillion have slipped under the radar.
DR. ALAN MORRISON, PROFESSOR OF LAW, AMERICAN UNIVERSITY: The difficulty is that Congress has spent all its time both crafting the TARP statute for the Treasury and trying to set up some oversight mechanisms. There are no specifically directed oversight mechanisms for what the Fed is doing.
VOICEOVER: The Fed has stated that its loans are short-term and risk-free, but some are worried that the Fed is losing credibility. According to Bloomberg, the Fed has taken on greater credit risks since the rescue of Bear Sterns. Other borrowers have included AIG and Citigroup. And, unlike the Treasury, the Fed has no lending cap.
MORRISON: There is no limit on the amount that the Fed can spend, and they have spent about $1.3 trillion, which is more than twice the amount the Treasury is allowed to spend and about four times what Treasury is actually spending already.
VOICEOVER: Three separate oversight panels have been set up to monitor the Treasury’s TARP program. But the only body with any authority over the Fed’s cash flow is Congress.
MORRISON: Additionally, Congress has taken a hands-off view of the Fed. It’s supposed to be independent. But when in effect the Fed is doing, functionally, the same thing that the Treasury’s doing with TARP, all of those rationales for Congress staying out of the business of looking at the Fed do not apply.
INTERVIEWER: And do you think that Congress is ready to take on the Fed? I mean, there is this question of whether the Fed should be completely independent of Congress. But in a situation like this, it’s looking a lot like TARP, just bigger.
GRAYSON: Bigger, and completely out of control. You know, there’s an old saying: “Two heads are better than one.” When you’ve got one person, Mr. Bernanke, making decisions on how to spend $4,000 for every American, sometimes things might go wrong, particularly when it’s done in secret.
GRAYSON: If you put out $50 billion to Credit Suisse, the taxpayers need to know that.
KOHN: I’d be very concerned, Congressman, that if we published the individual names of who’s borrowing from us, no one would borrow from us. The purpose of our borrowing is not to support individual institutions but to support the credit markets.
GRAYSON: Has that ever happened? Have people ever said, “We will not take your $100 billion because people will find out about it”?
KOHN: —we said we will not publish the names of the borrowers, so we have no test of that.
GRAYSON: Well, what gave you the authority to say that? Isn’t that something that we should be deciding, not you?
GRAYSON: I think it was Ronald Reagan who said, “Trust, but verify.” It might well be that Mr. Bernanke has a large amount of credibility at this point. I’m not really sure. It might be that people are willing to trust him. But they still need to verify what’s being done with such staggering, enormous, unprecedented amounts of money.
VOICEOVER: Grayson may have turned some heads. The Financial Services Committee is currently scheduled to hold a hearing on this staggering, enormous, unprecedented sum of money on February 10.
GRAYSON: What do you think might happen if people knew how their $1.2 trillion had been spent? Do you think they might be angry?
KOHN: No. I don’t know, obviously.
GRAYSON: Well, you know, one possibility in life about why people want to do things in secret is because they’re doing something wrong. And we don’t know whether that’s what’s going on here or not, but there’s only one way to find out, which is to try to shed some light on the situation. We can’t simply take somebody’s word for it when we’re talking about $1.2 trillion. That’s not good enough. We are a government of laws, not a government of men, and maybe Mr. Bernanke needs to remember that.
Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.