Sometime Tuesday the Senate may take up Bernie Sanders’ amendment to the Senate financial reform bill. It would require the Government Accounting Office (GAO) to conduct an audit of the operations of the Federal Reserve. The outcome is much in doubt, but it shouldn’t be.

Current and past Fed officials, who have much to answer for, are naturally opposed, as is the Obama Administration, which has become the champion for government non-accountability. They’re joined by Wall Street and the big bankers’ Senate apologists. It is a sorry spectacle.

The principle that government agencies should be transparent and publically accountable is a cornerstone of democratic, responsive government, which is why those who favor plutocracy, let alone kleptocracy, find the concept so threatening. But the US financial sector and its governmental partners have for decades assiduously promoted the view that the Federal Reserve should be exempt from scrutiny, because, they claim, otherwise its "independence" would be as risk. Never mind that the dangers a nation’s economy faces can as easily come from the Fed’s co-dependency with the nation’s largest, irresponsible banks when coupled with a market ideology that encourages fraud and looting. If ever there was a sector that needed sunlight, this is it.

We’ve learned over the last two years the boys at the Fed just aren’t as smart as they claim but are too arrogant and conflicted by regulatory/ideological capture to admit it. So if we have to have a Fed, we have to figure out how to oversee it and keep it focused on the public interest and not solely the banks’ interest.

If it wasn’t clear already, the recently released transcripts of 2004 meetings of the Fed’s Open Markets Committee reveal they were shown clear evidence of a dangerous housing bubble in early 2004 — when they still had a window to let an overheated sector down easy and prevent the great crash. But they not only failed to take it seriously, they accepted the view that they, and only they, understood what’s going on and shouldn’t let anyone else know.

Here’s Alan Greenspan, from the Spring of 2004, a period when a competent, vigilant bank regulator might have realized we were experiencing a disturbing housing bubble and needed at least to raise a warning if not to start deflating it:

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand."

Whereupon, the Oracle suggested they take a coffee break rather than do their jobs and apparently everyone nodded in agreement. We can now expect a flurry of reports on all the times Greenspan said "there’s no problem," "buy homes," and "no one anticipated," or "no one said anything," even though they clearly did.

The folks at Calculated Risk, Ryan Grim, Naked Capitalism, a must read, Matthew Yglesias, Paul Krugman and others are now all over the 6-year old transcripts. By law, the Fed was supposed to release transcripts for all of 2004, but it only released the first half and is withholding the second half until next year. You’d think that with Congress struggling to figure out how to reform the system, and the Financial Crisis Inquiry Commission directed to produce a report by December, the Fed would be releasing everything up through 2008. And they can throw in the e-mails between the Fed, Treasury, AIG, Goldman and friends. This is what subpoenas are for.

Assuming one accepts that on matters of monetary policy an economy needs an elite group of qualified grownups in charge of the money supply, and because of the significance of what they do they need to be at least somewhat shielded from the nutwing politics we have today, it’s hard to believe they need five years of secrecy and can’t handle periodic audits by one of the most responsible agencies in the US Government.

Dean Baker lays out the straightforward case for a thorough audit and shining some light on an institution whose complete failure led to the worst economic recession since the Great Depression. Like most Americans, he wants to know what Ben Bernanke did with all that money — who got it and what we got in return. That’s important, but we should also be asking whether it’s reasonable to expect this structure to do the job they’ve been given. After all, if the institution utterly failed, why isn’t its structure or composition a major issue in reform?

Yglesias picks up on the tone of the Fed meetings and the incurious quality of the questions from Fed members. What that says to me is these folks were not ideologically inclined to want to know more. Markets correct themselves, and fraudulent operators lose market share, right? How could they have been so delusional?

The argument for a responsible audit process should be a slam dunk, but unfortunately, the case is not helped by Rep. Ron Paul (and to a lesser extent, Rep. Alan Grayson), the sponsor of the House version. Paul doesn’t want a competently run Fed; he wants to abolish the central banker and eliminate it’s printing of money, without explaining how the system would work, how one implements stimulus spending during the recession or keeps the economy afloat during a credit crisis. Neither can imagine why the banker for one country in an interconnected world might need to rescue banks in another country. Would he rather we were Greece?

Senator Bernie Sanders, who’s pushing the audit amendment in the Senate, presumably has more sense, and Paul’s nuttiness shouldn’t detract from the underlying principle. An agency of the US Government (and it’s bank-dominated affiliates) should be far more accountable and transparent, especially when its most recent Chairs and governors have proven to be so incompetent and devastatingly wrong. They diddled with charts while the banks they were supposed to oversee looted the country and put 11 million people out of work. Not auditing that failure is a coverup.

More:
Dean Baker, Audit the Fed. What did they do with our money?
HuffPost/Ryan Grim, Greenspan wanted housing bubble dissent kept secret
Calculated Risk, Fed discussed possible housing bubble in 2004
Matthew Yglesias, Is our Fed Governors learning?
Calculated Risk, More Fed bubble talk in 2004
Naked Capitalism, Yves Smith and Tom Adams, The Fed thumbs its nose at the public
Paul Krugman, Bubble Denial
TPM/Buetler, Pelosi: Bush Admin barred officials from briefing Congress on financial crisis

Update from Naked Capitalism. The Fed Thumbs its Nose . . .:

Even a cursory inspection of the Fed’s disclosures of its extraordinary rescue operations shows them to have been made only under duress, and then to be incomplete and deliberately unhelpful.

The reason this matters, is that, contrary to the Fed’s claims of independence, it has been operating as an extra-legal off balance sheet entity of the Treasury, circumventing normal Constitutionally-stipulated budget processes. And rather than make adjustments in its practices to reflect its enlarged and now overtly political role, the Fed has instead been engaging in cynical, blatant misrepresentation, giving lip service to the idea of greater transparency in pubic, while fighting disclosure tooth and nail.

Since the Fed has entered into an openly political stance (and this dates back to Greenspan) and cannot be relied upon to make truthful and complete disclosures, the only recourse is to put it on a much shorter leash, which includes greater scrutiny, including third party validation. The Fed has brought on the audit demands via the unabashed and repeated abuse of its privileged role. . . .

[Explaining the Fed's handling of its Maiden Lane off-balance sheet transactions for Bear and AIG . . .] The Fed is engaging in same practices that caused the crisis: failure to make timely disclosures, obfuscation, use of off balance sheet vehicles to distance itself from losses. This posture alone should disqualify the central bank from assuming a greater regulatory role.

The Fed and Treasury’s three card monte operation is anti-democratic and possibly illegal, and to add insult to injury, voters are treated as if they have no right to know when they are ultimately footing the bill. The Fed’s persistent stonewalling and deep seated hostility toward the public provide ample proof of the need for an audit.