On May 20th, President Obama signed into law a “Fed clause” giving the Government Accounting Office (GAO) the “power to examine the Federal Reserve’s emergency aid to specific companies, such as AIG, Bank of America Corp. and Citigroup Inc.”.
As Bloomberg writes:
The new law is designed to give the GAO access to records and people at the Fed’s Board of Governors in Washington as well as the 12 district banks, such as the New York Fed, which has been the government’s lead day-to-day supervisor of AIG.
While this is a good first step, Bloomberg correctly points out:
The new Fed audit law differs from more intrusive legislation introduced in the House by Ron Paul, a Texas Republican, and in the Senate by Bernie Sanders, a Vermont independent. Those bills, which haven’t made it past the initial stage of being introduced in Congress, would remove limits on GAO audits of the Fed and direct the agency to issue a report on the central bank by the end of next year…
Fed Chairman Ben S. Bernanke indicated in testimony May 5 that he wouldn’t object to GAO audits of the central bank as long as there was no examination of monetary policy. Fed officials are wary of political interference into their ability to tighten credit and contain inflation…
“I certainly would resist any attempt to dictate to the Federal Reserve how to make monetary policy,” Bernanke said.
Senator Charles Grassley, the Iowa Republican who sponsored the amendment allowing the Fed audits, said May 6 that while the authority was narrower than he would have liked, “it is a reasonable step in the right direction, and it does not threaten monetary policy independence.”
Of course, “monetary policy independence” may not be such a good thing, given that the Fed presided over both the Great Depression and the greatest financial bubble in the history of the world (the one from 2001-2007), and the Fed has failed by its own terms to provide any counter-cyclical balance to the momentum economy.