Federal Reserve Board Chairman Ben Bernanke got grilled today at the House Financial Services Committee hearing on monetary policy. Bernanke continues his practice of style over substance, dismissing uncomfortable truths.
As the New York Times reported:
Representative Ron Paul, the Texas Republican and persistent libertarian critic of the Fed -- he favors something like a return to the gold standard -- said the Fed continued to create "moral hazard" by allowing companies to take risks because they believe they will be bailed out if they fail.
" 'Too big to fail' creates a tremendous moral hazard," he said, "but of course the real moral hazard over the many decades has been the deception put into the markets by the Federal Reserve."
After Mr. Paul suggested that money used in the 1972 Watergate break-in came from the Federal Reserve, and that the Fed had loaned $5.5 billion to the regime of Saddam Hussein of Iraq, Mr. Bernanke replied, "The specific allegations you have made are absolutely bizarre. I have no knowledge of anything remotely like what you've described."
And when Mr. Paul asked whether the Fed would bail out the Greek government, Mr. Bernanke replied, "We have no plans whatsoever to be involved in any foreign bailouts or anything of that sort."
While the reporting of the exchange does seem "bizarre," the Congress would have been better served if the Fed chairman had simply addressed the facts. Professor Bob Auerbach of the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin (and an economist at the House Financial Services Committee for eleven years assisting in oversight of the Federal Reserve) brought these issues to light in a book published by a university press:
In Deception and Abuse at the Fed, Robert Auerbach, a former banking committee investigator, recounts major instances of Fed mismanagement and abuse of power that were exposed by Rep. Gonzalez, including:
- Blocking Congress and the public from holding powerful Fed officials accountable by falsely declaring--for 17 years--it had no transcripts of its meetings;
- Manipulating the stock and bond markets in 1994 under cover of a preemptive strike against inflation;
- Allowing 5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank--the result of faulty bank examination practices by the Fed;
- Stonewalling Congressional investigations and misleading the Washington Post about the6,300 found on the Watergate burglars.
Bernanke, ostentatiously a student of the Fed before heading it, does the Congress and the public a disservice by disrespecting Congress with flippant, ignorant responses. Kudos to Chairman Frank for saying we need to followup on Dr. Paul's issues.
Last month I wrote on an under-reported reason why we need better audits and accountability of the Federal Reserve. Bernanke now helps that cause.