Federal Reserve Chairman Ben S. Bernanke (pictured left) said the central bank would welcome a "full review" of its aid to American International Group Inc. by congressional auditors and make all necessary records and personnel available to them. "To afford the public the most complete possible understanding of our decisions and actions in this matter, and to provide a comprehensive response to questions that have been raised by members of Congress, the Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG," Bernanke said today in a letter to Gene Dodaro, acting head of the Government Accountability Office. The Fed released the letter. Lawmakers are seeking more details on the FedÊ¼s oversight of AIG after e-mails released this month showed the New York Fed told the company to withhold information from the public about payments to banks. Congress passed a law in May giving the GAO authority to review Fed documents in the 2008 bailout of insurer AIG. – Business Week
Dominant Social Theme: We have nothing to hide.
Free-Market Analysis: This is really unheard of, in our opinion. Even a year ago, the idea of the Fed actually "welcoming" a full review by Congress into ANY of activities would have seemed faintly ludicrous. Even now, we wonder what the Fed really has in mind – what slippery rhetorical tricks it will attempt to play. They are not faced, after all, with a very tough adversary. The GAO is anything but an intrepid investigator. It is an arm of government – and is the same entity, for instance, that has been approving Barack Obama's health care bill, certifying that it will meet budgetary goals, etc.
The GAO is today known as the Government Accountability Office. Here's Wikipedia on how that nomenclature came into effect: "A  federal law designed to provide new human capital flexibilities with respect to the Government Accountability Office, and for other purposes … change[d] the name of the organization from the General Accounting Office, which it had been known as since its founding in 1921, to the Government Accountability Office." Even at the time, it made us queasy. Congress just couldn't leave well enough alone. Like a used-car salesman relabeling his line of vehicles "pre-owned," the federal legislature needed to make sure the public knew just how tough the GAO really was – and, no, it's not.
So … we wonder what shenanigans will be played. Yet it is difficult to see how the Fed handles it from a PR point of view. No matter how the Fed tries to dress it up, AIG still paid Wall Street a full dollar. Billionaires bailing out billionaires – that's how the public will see it (already does), even if the GAO blesses the transaction as necessary or appropriate.
The trouble for the Fed is that this is such a high profile issue now that any parliamentary maneuvers will make things look still worse. Thus Ben Bernanke makes conciliatory sounds between clenched teeth. The larger issue is the one to watch. The American Federal Reserve is a power elite promotion, an entity that allows a small group of men almost full control over American money production under the pretense that it is supervised by government and knows what's best for the rest of us. It is in fact, in many ways organized as a public entity, but its actions are opaque and its powers are wielded by a few insiders.
We have to believe the Fed and its insiders are in an increasingly uncomfortable position. They must actually support the absurd idea, day-to-day, that the Fed is a public trust – rather than what it is in our opinion, an instrument of terror and rapine, an engine of middle class destruction, an entity that has singlehandedly destroyed American industry and devalued the dollar, over the past century, by perhaps 99 percent. Bernanke is now stuck with defending a secretive machine of exploitation and presenting it as a responsible overseer. The rhetoric surrounding the Fed was always just that – comforting words intended to reassure a know-nothing public about its "mission." But, Lord, no one took it seriously, least of all those managing the entity.
We don't know how all this is going to end. We do know that as long as the American economy doesn't rebound too much, that people are going to remain deeply angry – and that this time, unlike other episodic intervals of monetary unwinding, Americans are willing (thanks to the Internet we believe) to blame Washington as well as private industry.
NOTED: FBI in illegal wiretap snafu. … For immediate release: Today, in response to news reports that the Federal Bureau of Investigation (FBI) repeatedly broke U.S. law between 2002 and 2006 in accessing private telephone records, Congressman Jerrold Nadler (D-NY) (pictured left), Chairman of the House Judiciary Subcommittee on the Constitution, Civil Rights and Civil Liberties, reiterated the pressing need for National Security Letter (NSL) reform. Nadler's legislation, the National Security Letters Reform Act of 2009, much of which was incorporated into the USA PATRIOT Amendments Act of 2009, is essential in order to reform and improve intelligence gathering, and to protect Americans from unnecessary and illegal invasions of their privacy. Nadler has chaired Subcommittee hearings on NSL authority in recent years and plans to hold future hearings following the release of a Department of Justice report on FBI abuses. Nadler issued the following statement: "I am appalled but not particularly surprised to read reports that the FBI illegally collected phone records for years on thousands of Americans. This unconstitutional disregard for civil liberties is unfortunately in line with the culture of abuse of power which thrived under the Bush administration. Between 2001 and 2008, many of the checks that were in place to prevent overreach by the executive branch were systematically dismantled, always in the name of fighting terrorism. … Today's news on the FBI's illegal actions only serves to underscore the urgency for NSL and PATRIOT Act reforms. My NSL legislation is a crucial tool for safeguarding Americans against government invasion of privacy and, generally, against any administration that would seek to abuse its power. We simply must reign in NSL authority to meet constitutional standards and restore essential checks and balances to our government. And we must ensure that the FBI follows the Constitution as it seeks to protect our national security."
The old government and central banking trick of pointing one's finger at Wall Street and ginning up populist outrage at "bankers" in order to get pols off the hook is not working anymore. People understand too much about the interrelatedness of the public and private sectors. The problem is mercantilism – when a private, secretive elite manipulates government behind the scenes to line its own pockets. Bernanke cannot in all seriousness defend the Fed because the Fed, when one moves past the lame, academic rhetoric, is indefensible. It is a measure of Bernanke's difficulties that he feels the need to try.