Bernanke’s Change Of Heart

January 20, 2010

Ben Bernanke

Federal Reserve Chairman Ben Bernanke has decided to allow the Government Accountability Office (GAO) have (full?) access to their books on the American International Group (AIG) bailout. Bernanke has resisted this request for several months now, but with the House passing a bill that would give authority to the GAO to audit the entire Fed books and strip them of certain powers, he has decided to relent. This is obviously a defensive move on Bernanke’s part.

Since it’s inception, the actions by Federal Reserve have been kept a deep dark secret relative to what they do with taxpayer money. By definition, that means past and current heads of the Fed, as well as most government officials, know that what the Fed does with taxpayer money most likely will not set well with the general public. Therefore, when pushed, the Fed and their protectors will wage a huge battle to defeat any attempt to make them completely transparent.

The bill, introduced by Republican Ron Paul and passed by the House, has lots of backing, including many Republicans. To date 55 have signed on as co-sponsors, and many more are supporting the bill.

Bernanke wrote a letter to the director of the GOA notifying them of his intent to open the books on AIG. Other activities by the Fed will not be made available. But he’s already defending his past actions on this particular subject:

It is important that the Congress and the public understand that, in our actions regarding AIG, the Federal Reserve and the Treasury acted in the best interests of the United States to preserve the financial system and to protect households and businesses from potentially calamitous effects on the U.S. economy, while doing everything possible to protect the American taxpayer.

During the past year the Fed has issued trillions of dollars worth of credit to the same banks that received TARP funds, as well as banks who did not receive TARP. In fact, most of the TARP funds were paid back using that borrowed taxpayer money. Bernanke, along with many others, skirted this issue when first faced with it. However, in early fall of last year, they begin to soften their position as more and more evidence begin to surface about the loans. Although no longer in total denial, they’re still not openly admitting it, and certainly not offering any numbers. Why? For the same reason they don’t want their books audited — the taxpayers would go ballistic.

So while Bernanke may be having a change of heart on the AIG issue, he’s viewing this as a small price to pay for not divulging all other secrets, and hopes it will dampen the ferocity of the new House bill. No doubt that the books have been well scrutinized by Bernanke, and possibly slightly doctored. Or that backroom deals have been made as to just how much AIG information will actually be made public. If for no other reason, those who will have the final say-so on what to make public will probably come away from the audit just as fearful as the Fed is.