UPDATE - 12:10 p.m. - The amendment to open the Fed to a one-time audit of its lending between December 1, 2007 and the present passed 96-0.
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Judd Gregg (R-N.H.), the Federal Reserve's most outspoken defender, came out in support of an amendment by Sen. Bernie Sanders (I-Vt.) to force transparency on the Federal Reserve. Gregg's surprising support gives the amendment a major boost.
The Sanders amendment began as a reflection of language passed by the House and cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.) that would authorize a broad audit of the Fed. In negotiations with Banking Committee Chairman Chris Dodd (D-Conn.) and officials from the Fed, Sanders scaled back his audit and restricted it to a one-time look at lending activity from December 1, 2007 until the present -- information that the Fed has so far fought to keep from disclosing. It goes further in some respects than the Paul-Grayson measure, in that it mandates the disclosure of recipients of Fed largesse. (Background on the compromise here.)
Even a year ago, it would have been unthinkable to have Judd Gregg and Ron Paul agree on anything having to do with the Fed other than its street address. The momentum behind a Fed audit is an indication of surging populist sentiment and a financial industry on the defensive.
The battle will continue in conference committee negotiations between the House and Senate and will go on after the bill is signed, as backers push for real transparency at the Fed. But prying open the lid just once would represent a remarkable victory of an ideologically diverse, bipartisan coalition against establishment power.
"Occasionally around here you get to make a historic contribution," said Dodd from the Senate well. A longtime opponent of the Paul-Grayson's audit, Dodd's support of the compromise initially convinced Fed opponents that the measure must have been gutted. A closer look, however, showed it to be a step forward. "This is a historic moment," said Dodd, asking to be added as a cosponsor.
The pressure on the Fed, Dodd said, was already having an impact. He had just met with Federal Reserve Chairman Ben Bernanke to be briefed on the European bailout, Dodd said, and the amendment is already having an impact.
"I want to tell my colleague from Vermont, not only are we going to achieve what he wants here with this amendment, but we had a meeting with the chairman of the Federal Reserve to brief us on the events in Europe over the weekend and the chairman of the Federal Reserve is going to put up on its web site as soon as possible the contracts between the Fed and any other central banks that occurred over the past weekend. He's also committed that the Fed would report weekly on the activity on each of the swap accounts by the federal bank, not simply the aggregate. The legislation is going to do a lot, but you already have an influence on the conduct of the Fed in terms of the transparency issues," Dodd said.
What could cause such a turnaround among Dodd and Gregg? The threat that the original Sanders amendment -- Paul-Grayson's version -- might actually pass. By backing a substitute, even one that's less than the Fed would like, Dodd and Gregg are able to stave off the stronger proposal. Whether the original amendment could have passed was unclear; on Friday, Sanders himself said he wasn't sure the votes would have been there in the face of intense lobbying from the White House and Fed.
Sen. David Vitter (R-La.) took up the Sanders standard and introduced the Paul-Grayson language separately. In backing the Sanders compromise, both Dodd and Gregg savagely attacked the broader amendment.
Paul first introduced a bill to audit the Fed in 1978.
On the Senate floor, Gregg acknowledged the role the Fed played in "aggressively" negotiating the compromise. "Chairman bernanke, I also wish to congratulate he and his staff for stepping forward and progressively -- aggressively pursuing this, which will be positive for both sides," said Gregg.
To get a sense of how far the debate has swung, consider that Gregg warmly reference populist leader William Jennings Bryan in announcing his support for the measure, recalling (accurately) that the Fed was originally founded as a result of populist pressure. "There was a huge debate in this country since the great depression of 1897 and 1907 about how you managed the currency of this country. And the central figure in that debate was William Jennings Bryan, a man of immense proportions in our history. He was a populist in the extreme. And he believed genuinely that turn control of the currency to elected officials, the currency becomes at risk because there is a natural tendency by elected bodies to want to produce money arbitrarily to take care of spending which they deem to be in the public interest. And thanks to the leadership at that time of a number of thoughtful people, including people like Woodrow Wilson, the decision was made to create a separate entity called the Federal Reserve which would manage the currency of the United States and decide how much money was printed," Gregg said.
UPDATE II - 12:39 p.m.: The Vitter amendment failed 37-62. Five senators, four of them Democrats, voted against Vitter's broader amendment, even though they had cosponsored virtually the same amendment when it was led by Sanders, confirming in practice what had already been announced, that a deal had been agreed to.
Sens. Pat Leahy (D-Vt.), Barbara Boxer (D-Calif.), Jeanne Shaheen (D-N.H.), Mark Begich (D-Alaska) and Bob Bennett (R-Utah) all cosponsored the Sanders amendment but voted no on it with Vitter as lead sponsor on the floor.