Restoring American Financial Stability Act of 2010

Floor Speech

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Mr. SANDERS. Madam President, as soon as I possibly can, I intend to bring
up an amendment which calls for transparency at the Fed. I must tell my colleagues that this amendment is one of the more unusual amendments that has been brought up in the Senate, I suspect for many years, because of the rather strange coalition that has come together around it. How often do we have the AFL-CIO, a progressive organization, and Freedom Works, a very conservative organization, supporting the same effort? How often are the SEIU, the largest union in America; moveon.org, 5 million members as a progressive organization; and Public Citizen, another progressive organization, striving for the same goal as the National Taxpayers Union or the Eagle Forum or Americans for Tax Reform, very conservative organizations? How often do we have some of the most progressive Members in Congress--and I include myself within that fold--working with some of the more conservative Members? It doesn't happen every day, but that is what is happening on this amendment.

I rise to talk about the amendment, what it does, and why so many diverse groups, representing tens of millions of Americans, are coming together in support of it. I also wish to suggest what it does not do and some of the ways it has been distorted by the Fed and other groups that are opposed. I have seen some of the statements made by the Fed which are absolutely untrue in terms of what this amendment does and does not do.

For me, the origin of this amendment came on March 3, 2009, when, as a member of the Budget Committee, I asked the Chairman of the Fed, Ben Bernanke, a very simple question. I asked him if he would tell me, the committee, and the American people which financial institutions received over $2 trillion in zero interest or near zero interest loans during the start of the economic crisis. During the bailout period, some $2 trillion of taxpayer money was lent. My question was: Mr. Chairman, who received that money? I don't think that is an unfair question. We have heard great debates here on the Senate floor about $5 million or $10 million. To ask who received over $2 trillion in zero or near zero interest loans is something I believe should be answered by the Fed, and they should make that information public. But Bernanke said no. He gave his reasons.

On that very day, I introduced legislation that would require the Fed to put this information on its Web site, make it public, just as Congress required the Treasury Department to do with respect to the $700 billion TARP money. Some may like TARP; some may not. Some may have voted for it; some may not have. But the information about who received the money, when it was paid back, et cetera, is right there on the Web site of the Treasury Department.

This $2 trillion in zero or near zero interest loans does not belong to the Fed. It belongs to the American people, and the American people have a right to know where trillions of their taxpayer dollars are going. It is not complicated. One doesn't need an MBA from Wharton to know that. That is why millions of Americans, whether conservative or progressive or in between, have come together to say we need transparency at the Fed.

This amendment not only requires that the Fed tell us who has received the $2 trillion it lent out, but, similar to the language incorporated in the House bill, it calls for an audit of the Fed by the GAO. As we all know, the GAO is the nonpartisan Government Accountability Office that does a great job in trying to figure out where there is waste and fraud within the government. That is it. This is a very simple, short amendment. It is five pages. It calls for transparency at the Fed and a straightforward audit. Who got what? When did they get it? On what basis and on what terms? Who was at the meetings? Who made the decisions and were there conflicts of interest? Simple, factual questions the American people deserve answers to. That is what it is; it is not complicated.

I understand this amendment will not be supported by everyone. Some may suggest, inaccurately--and I have heard these statements--that this amendment ``takes away the independence of the Federal Reserve and puts monetary policy into the hands of Congress.'' Let me address those concerns by simply reading exactly what is in the amendment. It is not complicated. I quote from page 4 of the amendment. This is what it says. I don't think I can be more straightforward than this:

Nothing in this amendment shall be construed as interference in or dictation of monetary policy by the Federal Reserve system, by the Congress, or the Government Accountability Office.

It can't be more simple. It can't be more straightforward than the language in this amendment. So when people tell us this amendment is going to interfere and have Congress dictate monetary policy, it is simply not true. In other words, this amendment does not take away the ``independence of the Fed'' and it does not put monetary policy into the hands of Congress. This amendment does not tell the Fed when to cut short-term interest rates or when to raise them. It does not tell the Fed what banks to lend money to and what banks not to lend money to. It does not tell the Fed which foreign central banks it can do business with and which ones it cannot. It does not impose any new regulations on the Fed, nor does it take any regulatory authority away from the Fed. It does none of those things, no matter what anybody coming to the floor may say.

What the opponents of this amendment are doing is equating independence, which we support, with secrecy, which I do not support. At a time when our entire financial system almost collapsed, we cannot let the Fed continue to operate in the kind of secrecy they have operated in for years. The American people have a right to know.

Very often, we see Senators coming down here to the floor to make the point that working people have to play by the rules. How often have we heard that rhetoric? What are the rules governing the Fed? Who makes those rules or do they just make them up as they go along?

Let me list a few of the questions millions of Americans and Members of Congress are asking that a GAO audit might help to answer. I am sure there are many more.

Question: Why was Lloyd Blankfein, the CEO of Goldman Sachs, invited to the New York Federal Reserve to meet with Federal officials in September of 2008 to determine whether AIG would be bailed out or allowed to go bankrupt? I wasn't invited to that meeting. Other Senators were not invited to that meeting. Lloyd Blankfein was invited to that meeting.

When the Fed and Treasury decided to bail out AIG to the tune of $182 billion, why did the Fed refuse to tell the American people where that money was going? Why did the Fed argue that this information needed to be kept secret ``as a matter of national security''?

When AIG finally released the names of the counterparties receiving this assistance, how did it happen that Goldman Sachs received $13 billion of this money, 100 cents on the dollar on what AIG owed them? How did that happen? I don't know. We don't know. The American people don't know. But I think we have a right to know.

Did Goldman Sachs use this money to provide $16 billion in bonuses to its top executives the next year? All over this country, Americans have lost their jobs. They have lost their homes. They have lost their savings. They have lost their ability to send their kids to college because of this recession caused by Wall Street. Yet Goldman Sachs gets $13 billion--100 cents on the dollar--after AIG is bailed out at a meeting in which Lloyd Blankfein is in attendance.

I think it is an interesting question. I don't know the answer, but I think the American people have a right to know. A GAO audit of the Fed might help explain to the American people if there were any conflicts of interest surrounding that deal.

Who got what? On what basis? On what terms? Who was at the meetings? Who made the decisions? And were there conflicts of interests?

In 2008, it seems to me--I did not go to Harvard Business School, but it does seem to me--there was an apparent conflict of interest at the Federal Reserve Bank of New York when Stephen Friedman, the head of the New York Fed--who also served on the board of directors of Goldman Sachs--let me repeat that: He was the head of the New York Fed; he also served on the board of directors of Goldman Sachs--and the New York Fed approved Goldman's application to become a bank holding company, giving it access to cheap loans from the Federal Reserve.

Let me quote from an article published in the Wall Street Journal on May 9, 2009, and let the American people determine whether this deserves a GAO audit. Quoting the Wall Street Journal:

Goldman Sachs received speedy approval to become a bank holding company in September of 2008. ..... During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy. The New York Fed asked for a waiver, which after about 2 1/2 months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They have since risen $1.7 million in value. Mr. Friedman, who once ran Goldman, says none of these events involved any conflicts.

That was from the Wall Street Journal of May 9, 2009.

Well, maybe Mr. Friedman is right. Maybe there is not a conflict of interest. It seems to me there is a very apparent conflict of interest, but that is an issue that maybe a GAO audit might want to look at.

As a result of the bailout of Bear Stearns and AIG, the Fed now owns--this is pretty amazing--now owns credit default swaps betting that California, Nevada, and Florida will default on their debt. Let me repeat that. Senators from California and Nevada and Florida might be interested in this. As a result of the bailout of Bear Stearns and AIG, the Fed now owns credit default swaps betting that California, Nevada, and Florida will default on their debt.

So the Federal Reserve stands to make money if California, Nevada, and Florida go bankrupt. What can I tell you? This is the reality. I know it will seem strange to the American people that the Fed makes money and is betting that three of our great States go bankrupt. This may make sense to the Fed. It may make sense to some of my colleagues in the Senate. It does not make sense to me. Frankly, I do not believe it makes sense to the American people. But this is what an audit of the Fed will allow us to better understand: whether we want the Fed to be betting against some of our great States, that they will go bankrupt.

It has been reported that the Federal Reserve pressured Bank of America into acquiring Merrill Lynch--making this financial institution even bigger and riskier--allegedly threatening to fire its CEO if Bank of America backed out of this merger. When the merger went through, Merrill Lynch's employees received $3.7 billion in bonuses. Was this a good deal or a bad deal for the American taxpayer? Perhaps a GAO audit can help us find out.

When the Fed provided a $29 billion loan to JPMorgan Chase to acquire Bear Stearns, the CEO of JPMorgan Chase, Mr. Diamond, served on the board of directors at the New York Federal Reserve. Let me repeat that. When the Fed provided a $29 billion loan to JPMorgan Chase to acquire Bear Stearns, the CEO of JPMorgan Chase, Mr. Diamond, served on the board of directors at the New York Federal Reserve.

Did this represent a conflict of interest? To my mind, it does. Maybe I am wrong. But that is what a GAO audit can help explain to the American people.

Again, I know we are going to have Senators running down here saying: Oh, we are trying to break the independence of the Fed.

We are not trying to do that. What we are trying to do is allow the American people to get a glimpse and an understanding of some of the actions of the Fed involving huge sums of money.

Currently, some 35 members of the Federal Reserve's board of directors are executives at private financial institutions which have received nearly $120 billion in TARP funds, but we do not know how much these big banks received from the Fed. A GAO audit could answer that question.

Here is a very interesting point I know a lot of Senators have raised in different context: If the goal of the huge amounts of money in Fed loans--trillions of dollars in Fed loans--to large financial institutions was to achieve the goal of getting credit flowing to small- and medium-sized businesses that were cash starved--they were crying out for credit--why is small business lending in freefall? What happened? We gave the large financial institutions trillions of dollars, presumably to get it out to the small- and medium-sized businesses. They have not gotten it. Question--I think it is a reasonable question, and I am not the only one who is asking it--how much of those zero interest or near zero interest loans that these huge financial institutions received from the Fed were simply invested in Federal Government bonds, earning an interest rate of 3 or 4 percent?

In other words, are we looking at a huge scam? I cannot think of a better word. You give these large financial institutions trillions of dollars in zero interest loans in order to enable them to provide desperately needed loans to small- and medium-sized businesses, so those businesses can expand and create jobs. Yet that appears not to be happening.

Question: How much of those--those several trillion dollars in loans--simply went from the Fed to the financial institutions in order to purchase government-backed obligations at 3 or 4 percent? If that is the case, that is just giving away money. You have zero interest coming in; you get 3 or 4 percent guaranteed by the faith and credit of the United States of America.

Well, do you know what. I do not know. I do not know how much. I suspect, other people suspect, that was done. How much, I do not know. Maybe the GAO can tell us.

This amendment is virtually identical to legislation I have introduced on this subject that has 33 cosponsors. Just as we have a very broad spectrum of political ideology from grassroots organizations on the left and the right--conservative, progressive; Democrat, Republican--supporting this amendment, so we have had widespread--across ideology--support for this legislation.

Let me mention who the 33 cosponsors are. You will see how people with very different political ideologies have come together. The names of those people are: Senators Barrasso, Bennett, Boxer, Brownback, Burr, Cardin, Chambliss, Coburn, Cochran, Cornyn, Crapo, DeMint, Dorgan, Feingold, Graham, Grassley, Harkin, Hatch, Hutchison, Inhofe, Isakson, Landrieu, Leahy, Lincoln, McCain, Murkowski, Risch, Sanders, Thune, Vitter, Webb, Wicker, and Wyden. Those are the people who have supported the legislation.

This amendment coming to the floor has 20 cosponsors--Republicans and Democrats alike--and I want to thank all of those Senators for their support.

In terms of progressive grassroots organizations, this amendment enjoys the strong support of the AFL-CIO; the SEIU, the largest union in America; the United Steelworkers of America; Public Citizen; the New America Foundation; the Center for Economic Policy and Research; the Roosevelt Institute; the U.S. Public Interest Research Group; and Americans for Financial Reform, which in itself is a coalition of over 250 consumer, employee, investor, community, and civil rights groups.

Let me read you a letter of support I received for this amendment from Bill Samuel, the legislative director of the AFL-CIO. This what the AFL-CIO said:

On behalf of the AFL-CIO, I am writing to urge you to support--

This is a letter going out to other Senators--

the Sanders, Feingold, DeMint, Leahy, McCain, Grassley, Vitter, Brownback amendment to increase transparency at the Federal Reserve. ..... Working people want to know who benefitted from the liquidity provided by taxpayers during the crisis and this amendment will ensure that we receive this information.

Let me also quote from a letter I received from Andy Stern, the president of the SEIU, the largest union in the country; and also from Leo Gerard, the president of the United Steelworkers of America; and a number of other academics and economists. This is what they write:

Since the start of the financial crisis, the Federal Reserve has dramatically changed its operating procedures. Instead of simply setting interest rates to influence macroeconomic conditions, it rapidly acquired a wide variety of private assets and extended massive secret bailouts to major financial institutions. There are still many questions about the Fed's behavior in these new activities. The Federal Reserve balance sheet expanded to more than $2 trillion, along with implied and explicit backstops to Wall Street firms that could cost even more. Who received the money? Against what collateral? On what terms and conditions? The only way to find out is through a complete audit of the Federal Reserve. That's why we support the Sanders, Feingold, DeMint, Leahy, McCain, Grassley, Vitter, Brownback amendment to increase transparency at the Fed.

That is what leading progressive economic and social justice organizations are saying about this amendment.

Let me briefly, if I might, quote from some of the conservative organizations. One of the larger ones is the National Taxpayers Union. I do not usually quote from the National Taxpayers Union. I think I am not rated very highly on their chart. But this is what they say in support of this amendment:

The National Taxpayers Union urges all Senators to vote ``YES'' on S. AMDT 3738 to the financial regulatory reform legislation. This amendment, introduced by Senators Sanders and DeMint, would require the Government Accountability Office to conduct an audit of the Federal Reserve. ..... Transparency is not a Democrat or Republican issue, but rather an issue of right or wrong. If the Senate insists on further expanding the Fed's reach, Americans deserve to know more about the workings of a government-sanctioned entity whose decisions directly affect their economic livelihood. A ``YES'' vote on S. AMDT 3738 will be significantly weighted as a pro-taxpayer vote in our annual Rating of Congress.

We also have support from other conservative organizations, including Americans for Tax Reform, the Campaign for Liberty, the Rutherford Institute, the Eagle Forum, FreedomWorks, and the Center for Fiscal Accountability. In a letter of support I received from them they write:

We urge you to vote for Senators Sanders, Feingold, DeMint, and Vitter's Federal Reserve Transparency Amendment ..... This amendment does not take away the ``independence'' of the Fed. It simply requires the GAO to conduct an independent audit of the Fed and requires the Fed to release the names of the recipients of more than $2 trillion in taxpayer-backed assistance during this latest economic crisis. Any true financial reform effort will start with requiring accountability from our nation's central bank.

Let me conclude by saying this amendment is not a radical idea. I have just indicated to you that we have progressive groups, representing millions of people, and we have conservative groups, representing millions of people. We have the AARP, the largest senior group, representing, I think, tens of million of Americans.

I should also mention to you that as part of the budget resolution debate in April of 2009, the Senate voted overwhelmingly in support of this basic concept, by a vote of 59 to 39.

In the House of Representatives, this concept passed the House Financial Services Committee by a vote of 43 to 26 and was incorporated into the House version of Wall Street reform that was approved by the House last December.

In other words, a lot of what I am talking about is in the House bill--not a radical concept. This idea has the support of the Speaker of the House, Nancy Pelosi, who said Congress should ask the Fed to put this information ``on the Internet like they've done with the recovery package and the budget.'' That is what this amendment does.

This concept has also been supported--and this is important. I know my friend from Texas wants to speak. I am winding down and I apologize for going on this long. But it is important to point out that this concept has also been supported by two Federal courts that have ordered the Fed to release all of the names and details of the recipients of more than $2 trillion in Federal Reserve loans since the financial crisis started as a result of a Freedom of Information Act lawsuit filed by Bloomberg News.

The Fed has argued in court that it should not have to release this information citing, according to Reuters: ``an exemption that it said lets federal agencies keep secret various trade secrets and commercial or financial information.'' That is what the U.S. Appeals Court in New York said in disagreeing with the Fed. It was a unanimous three-judge appeals court. This is what they wrote in their opinion:

to give the [Fed] power to deny disclosure because it thinks it best to do so would undermine the basic policy that disclosure, not secrecy, is the dominant objective. If the board believes such an exemption would better serve the national interests, it should ask Congress to amend the statute.

Let me conclude by saying this: We now have 59 Senators having voted for this transparency, 320 Members of the House, and 2 U.S. courts. All we want to know is who got trillions of dollars. That is what we want to know. We also want to know on what basis, on what terms, and who was at the meetings where key decisions were made.

This is an important amendment, and it is an amendment that millions of people want to see pass. I hope we will have an opportunity to offer it as soon as possible, and I hope it is passed.

I yield the floor.

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