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Thursday, July 21, 2011

GAO audit opens Fed to fresh criticism

The Hill

By Peter Schroeder - 07/21/11 10:52 AM ET
The Federal Reserve had more than $1 trillion in loans out to a wide range of financial institutions during the financial crisis, according to a new audit of the central bank.
The Government Accountability Office (GAO) released its top-to-bottom audit of the Fed Thursday, opening the central bank to fresh criticism from the lawmaker that had pushed for the audit in the first place.
The GAO was directed to conduct the audit by a provision in the Dodd-Frank financial reform law pushed by Independent Sen. Bernie Sanders (Vt.).
He was quick to blast the Fed for its far-reaching activity during the peak of the financial crisis.
"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," he said. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

The GAO found that the Fed awarded $659.4 million of contracts to private parties during the crisis to help facilitate those emergency moves.

Eight of the 10 largest contracts were awarded on a noncompetitive basis. While such a "no-bid" contract is consistent with the Fed's policies, the GAO said those policies could be improved to pursue competition whenever possible and limit the length of any noncompetitive agreements.
The GAO also found that while the Fed had policies in place to avoid conflicts of interests for its employees, those could also be improved.
In particular, the new roles taken on by the Federal Reserve Bank of New York and its employees during the crisis increased the chance for potential conflicts that were not addressed in existing policies.
The government watchdog also recommended that the Fed strengthen its risk management practices for future crisis lending.
In particular, Sanders was highly critical of the Fed making emergency loans to foreign banks and corporations, which he said was an abuse of the Fed's power.
"No agency of the United States government should be allowed to bail out a foreign bank or corporation without the direct approval of Congress and the president," he said.
Sanders went on to criticize the Fed for its policies regarding conflicts of interest, saying that waivers provided to employees allowed them to keep investments in financial institutions and companies that received Fed loans.
As a prominent example, he pointed out that the chief executive officer of JPMorgan Chase was on the New York Fed's board of directors at the same time the firm was receiving more than $390 billion in Fed assistance. The firm also helped clear loans for the Fed during its emergency lending.
"No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed's board of directors or be employed by the Fed," said Sanders.

Zero Hedge
GAO Audit Exposes Fed's Corruption Once Again: