The Paul-Grayson Amendment

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Dear Financial
Services Committee Colleague:

It is encouraging
to see the issue of Federal Reserve transparency receiving so much
attention during this current markup. Today we plan to offer an
amendment to the Financial Stability Improvement Act that expands
on the many extant proposals to enhance Federal Reserve transparency.
Our amendment is based on HR 1207, the Federal Reserve Transparency
Act, which has broad bipartisan and grassroots support. The bill
is cosponsored by 309 Members of Congress, including all Financial
Services Committee Republicans and 13 Financial Services Committee
Democrats.

The amendment
removes restrictions on GAO audits of the Federal Reserve, as HR
1207 does, but makes a few changes to take into account some of
the concerns that the Fed has made known in public testimony. Specifically,
the Paul/Grayson amendment:

  • Exempts
    unreleased transcripts and minutes from meetings of the Board
    and FOMC to address the Fed’s concerns that free and open debate
    in their meetings would be stifled.
  • Sets a 180-day
    time lag for release of details of market actions the Fed has
    undertaken, to address the Fed’s concerns that Congress or GAO
    is second-guessing its actions.
  • Removes
    boilerplate language that allowed GAO to make recommendations
    on monetary policy and adds a section stating that nothing in
    the amendment shall be construed as interference in or dictation
    of monetary policy to the Fed.

Unlike proposals
that target the Fed’s 13(3) facilities, the Paul/Grayson amendment
opens up the entire $2 trillion Federal Reserve balance sheet to
a GAO audit. The Fed’s recent purchases of nearly $800
billion in mortgage-backed securities (MBS) have occurred under
the MBS Purchase Program, authorized under section 14(b) of the
Federal Reserve Act. This program, which is expected to reach a
size of $1.25 trillion, would remain exempt from audit even if all
the current 13(3) audit proposals were to go into effect. Targeting
facilities that are in the process of being drawn down and that
are authorized under a specific subsection of the Federal Reserve
while allowing other facilities to spring up in their place is counterproductive
to true transparency. All purchases and loans that appear on the
balance sheet should be subject to audit, without loopholes for
the Fed to evade scrutiny.

More importantly,
the Paul/Grayson amendment does not create any additional burdens.
Some competing proposals, while making a good effort at expanding
the number of 13(3) facilities open to audit, take a step backwards
by imposing new restrictions on GAO that are more burdensome than
the restrictions currently written into law. We cannot accept these
new restrictions. Unlike competing proposals, this amendment amends
existing restrictions on GAO audit authority, a necessary precondition
for a complete audit. Competing proposals leave these restrictions
in place, and even add new ones.

We also reject
the false dichotomy between transparency and independence. The Paul/Grayson
amendment would achieve the necessary transparency of the trillions
of dollars of Fed interventions while keeping Congress from directly
intervening in the decision-making process. Independence should
not be synonymous with secrecy. We urge our colleagues to support
the Paul/Grayson amendment.

Sincerely,

Ron Paul, Member
of Congress
Alan Grayson, Member of Congress

See
the Ron Paul File

November
19, 2009

Dr. Ron
Paul is a Republican member of Congress from Texas.

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