Senate approves audit of Federal Reserve’s emergency loans to banks beginning in late 2007. The House already passed an even tougher audit requirement late in 2009. -db
The New York Times
May 11, 2010
By David M. Herszenhorn
WASHINGTON, D.C. — The Senate voted unanimously on Tuesday to require an audit of the Federal Reserve’s emergency actions during and after the 2008 financial crisis as part of broad legislation overhauling the nation’s financial regulatory system.
The amendment, proposed by Senator Bernard Sanders, independent of Vermont, would require the Government Accountability Office to scrutinize some $2 trillion in emergency loans that the Fed provided to some of the nation’s biggest banks.
The vote was 96 to 0.
Mr. Sanders, a professed socialist, has long demanded greater transparency at the central bank, and his original plan could have subjected the Fed to continuing audits of some of its routine operations. But he agreed to scale it back in the face of opposition from the White House, the Fed, the Treasury and some Senate colleagues.
While the Senate provision would require an audit of the Fed’s emergency operations beginning on Dec. 1, 2007, the House approved tougher audit requirements late last year in its version of the financial regulatory legislation. Once the larger Senate bill is adopted, the provisions will have to be reconciled.
Senator David Vitter, Republican of Louisiana, put forward an amendment that would have mirrored the stricter House language. But the Senate rejected it Tuesday, 62 to 37. Mr. Sanders and six Democrats joined 30 Republicans in favor.
Later on Tuesday, the Senate voted by 63 to 36 to require the Treasury Department to study the prospect of ending the federal conservatorship of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac.
The Democrats put forward the amendment as an alternative to a proposal by Senator John McCain, Republican of Arizona, that sought to end the government’s involvement with Fannie Mae and Freddie Mac and potentially put them out of business within five years. Republicans denounced the proposed study as accomplishing nothing.
The lack of provisions related to the mortgage giants in the broader bill has become a point of contention for the Republicans who say that Fannie Mae and Freddie Mac were at the heart of the collapse in the housing market that led to the financial crisis.
They have used the debate to highlight how Fannie Mae and Freddie Mac continue to lose tens of billions of dollars at taxpayer expense. Fannie Mae on Monday requested an additional $8.4 billion in taxpayer assistance and Freddie Mac last week asked for an additional $10.6 billion.
The federal government has already contributed $137.5 billion to the mortgage giants since taking control of them in August 2008. Meanwhile, Michael J. Williams, the chief executive of Fannie Mae, was paid $6.68 million in salary and bonuses for 2009, even as the institution lost more than $74 billion. The bonus money is being paid this year, including a $581,000 disbursement in March, according to regulatory filings.
“This amendment that we’ll take up will end the taxpayer-backed conservatorship of Fannie Mae and Freddie Mac, by putting in place an orderly transition period and eventually requiring them to operate without government subsidies on a level playing field with their private-sector competitors,” Mr. McCain said at a news conference before his amendment was defeated.
“We are not saying that Freddie and Fannie have to go out of business,” he said. “We are saying we want them to be a business that is on a level playing field with other private sector competitors.”
Democrats, however, note that few private sector competitors are left, and that Fannie and Freddie now supply a vast majority of mortgage financing in the United States.
The Senate on Tuesday also adopted an amendment sponsored by Senator Michael Bennet, Democrat of Colorado, requiring that more than $180 billion in bailout money repaid to the Treasury under the Troubled Asset Relief Program be used to reduce the federal deficit rather than toward more bailouts or new spending.
The majority leader, Senator Harry Reid of Nevada, said on Tuesday that he wanted to finish work on the legislation this week. But Mr. Reid lacks the 60 votes needed to end debate, and the Republican leader, Mitch McConnell of Kentucky, said that he thought the bill required two more weeks of work.
“This is a very, very important bill, and there are many legitimate amendments,” Mr. McConnell said.
Mr. Sanders said his amendment would bring long overdue scrutiny to the Fed.
“At a time when the Federal Reserve has provided the largest taxpayer bailout in the history of the world, the largest financial institutions in this country, trillion-dollar institutions, the Sanders amendment makes it clear that the Fed can no longer operate in the kind of secrecy that it has operated in forever,” he said in a floor speech.
Critics of the more aggressive audit provision approved by the House said that it could infringe on the Fed’s independence and interfere with its ability to set monetary policy.
Mr. Sanders and other supporters rejected those assertions and said they were providing sufficient safeguards to protect the central bank’s integrity.
The House bill, which was approved in December, included a proposal sponsored by one of the most conservative lawmakers, Representative Ron Paul, Republican of Texas, and one of the most liberal, Representative Alan Grayson, Democrat of Florida.
Their proposal would allow audits by the Government Accountability Office of every item on the Fed’s balance sheet, and they said the Senate version would not go far enough.
“While it is better than no audit at all, it guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed,” Mr. Paul wrote on his Web site.