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February 1, 2010

Why the Fed Should be Audited


Several weeks ago, a bipartisan effort began in Congress to audit the Federal Reserve led by Rep. Ron Paul. Immediately, I realized that I was torn on what the Congress should and should not do. I listened to some commentary of both sides of the issue and determined most of what was said totally useless.

One good video on the Fed can be found here.

I am torn at the prospect of too much oversight by Congress in taking control of the Fed, but also that the Fed needs to be held accountable for essentially pumping trillions of dollars into our economy. I have sided on accountability and transparency.

Opponents of the Fed audit state that the Congress will use the Fed audit to take more control or politicize the Fed. I believe this is a credible concern. In previous cases, Central Banks in other countries have been politicized only to cause high inflation (by printing large amounts of money), debase/devalue the country’s currency, and eventually cause an inflationary depression (see Zimbabwe and Argentina).

I believe that by simply auditing the Federal Reserve and looking at the money trail, any American who is seeking information on what the Fed is doing can have easy access to this information. Let’s take the Fed’s Troubled Asset Relief Fund (TALF) as an example. TALF is a fund where the Fed buys troubled assets (foreclosed mortgages, worthless mortgage-backed securities) in exchange for cash to shore up banks’ balance sheets. TALF is supposed to stop growing by April and at some point the Fed will turn around and sell these troubled assets back to the private market, possibly at a profit.

Who did the Fed buy these troubled assets from?

Did they pay a premium(more than they are worth), discount (less than value), or par?

Who sold the most troubled assets to the Fed?

What is the composition of the Fed’s total troubled asset portfolio?

Have these assets appreciated/depreciated since they were purchased? (NOTE: The Fed has disclosed some information in relation to this issue, but valuation remains a concern).

I tried several weeks ago to find out more information about the specifics of TALF and I am still looking. By auditing the Fed, a clear report can be created (although it will be several hundred pages). Bloggers can comment on issues straight from the report, economists and finance experts can propose alternate (or new) courses of action, which may be useful to the government.

Above all, a simple audit of the Fed (and nothing else) gives some transparency to the current economic situation and gives each of us a full picture of the government’s efforts to prevent a global financial meltdown. These are not national security protocols, names of CIA agents, or other information that may be harmful to our national security (which the government under Pres. Obama has had no issue of disclosing), this is simply a history of the Federal Reserve’s purchase of private assets with price, participation, and performance information.

In summary, the American people deserve basic information about the price, participation, and performance information from the Federal Reserve.


-Were the Troubled Assets bought at discount, par, or premium?

-How were they valued?


-Who sold the most troubled assets?

-Did a bank buy troubled assets only to turn an easy profit by selling them to the Fed? (Reportedly, Citi Bank did this)


-What is the forecast on the future of these assets?

-Does any demand exist to buy these assets back from the Fed?

1 comment:

rai said...

great post , and your blog is just awsome.

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