Americans Should Know Where Fed’s Trillions Are Going

Published November 26, 2013

With the filibuster against most presidential nominees now eliminated — well, sort of, Senate Democrats did not actually amend the rules, they just voted to pretend they don’t exist — the confirmation of Janet Yellen to be the next chair of the Federal Reserve is all but certain.

Which is too bad.

Of all nominees, blocking cloture on Yellen could have been worthwhile. With the Fed creating $85 billion a month in its quantitative easing programs, the Senate has no business confirming any Fed chair until it and the whole country knows more about the policy.

Specifically, the American people and their representatives have no idea which banks are benefiting from the Fed’s $1 trillion annual subsidy.

The only way to know will be if there is a regular audit of the practice, because all that can be seen now is by how much the central bank’s balance sheet of securities is expanding — telling us little about who is receiving the money.

In the last one-time audit of the Fed under Dodd-Frank in 2010, it was ascertained that of the $877.3 billion of mortgage bonds the central bank had purchased that were included in the audit, some $442.7 billion — more than half — were bought from foreign banks.

These included $127.5 billion given to MBS Credit Suisse (Switzerland), $117.8 billion to Deutsche Bank (Germany), $63.1 billion to Barclays Capital (UK), $55.5 billion to UBS Securities (Switzerland), $27 billion to BNP Paribas (France), $24.4 billion to the Royal Bank of Scotland (UK), and $22.2 billion to Nomura Securities (Japan). Another $4.2 billion went to the Royal Bank of Canada and $917 million to Mizuho Securities (Japan).

According to the Federal Reserve, the securities were purchased at “Current face value of the securities, which is the remaining principal balance of the underlying mortgages.” These were not loans, but outright purchases, a direct bailout of foreign firms that had bet poorly on U.S. housing.

According to the New York Fed’s website, the purpose of the program was to “foster improved conditions in financial markets.” But whose financial markets were we really propping up? Those in the United States or in foreign countries?

The $442.7 billion overseas was just a snapshot in time. The last transactions covered in the audit date all the way back to July 2010.

Since July 8 of that year, the Fed has bought another whopping $1.689 trillion of securities. And we have no idea from where the central bank bought the securities because the practice is not audited.

If the previous audit was any indication, one presumes about 50.4 percent of the $1.689 trillion of purchases — more than $851 billion — has gone to foreign banks. But then who knows?

As for the $1.36 trillion of treasuries the Fed has bought since the financial crisis began in August 2007, we have no idea which banks received that money.

How can Senators make an informed decision about who should serve as Federal Reserve chairman overseeing a $1 trillion a year bank subsidy when they themselves have no idea where the money is going?

Were there still a filibuster, this would have been a ripe issue for Senate Republicans to block any Fed nominee until there is legislation providing for an annual audit of Fed securities purchases.

The fact is, the Fed’s $1 trillion a year subsidy to banks will be continuing for the foreseeable future under Yellen’s stewardship. If we’re really going to be bailing out banks more than five years after the financial crisis, shouldn’t the practice at least be transparent?

It is bad enough that Congress ceded its Constitutional legislative powers over monetary policy to the Fed 100 years ago. The American people and their representatives should at least be allowed to analyze the institution’s policies, which have such a dramatic impact on our economic well being.

Is that really asking too much?

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