Paul/Grayson Amendment Passes In Committee

By Karl Denninger, The Market Ticker

It’s about damn time.

Yes, it’s a first step – but an important first step, and it happened yesterday.  Here’s what Representative Grayson said at the time of debate:

Bloomberg wasted no time giving the "loyal opposition" to transparency all the digital ink they desired:

“It’s going to be seen as weakening the independence of monetary policy with consequent negative implications,” Frank told reporters after the vote. “People are going to be worried about the impact on the dollar, on the interest rate.”

Go listen to Mr. Grayson’s statement again. Now tell me how The Fed’s move to dilute our currency literally by half isn’t going to "raise inflation expectations" and "have an impact on the dollar."

Never mind the impact that has already occurred.  Is Barney Frank freaking blind?  What say you to this, Mr. Frank, considering that all of this dollar damage has occurred since The Fed decided to start monetizing Treasury and MBS debt:

Exactly what sort of "damage" are you worried about Mr. Frank?  Is not this enough for you?  This damage – a roughly 20% devaluation since March – occurred since The Fed announced its "purchase" programs, specifically the purchase of MBS paper for which it appears to have absolutely no legal authority.

How does an audit – determining if The Fed intentionally overpaid, if the transactions were commercially reasonable, if they were designed to help some people and screw others, if The Fed is hiding losses and if the transactions performed even comport with the law – hurt the dollar and inflation expectations?  Have you seen the price of GOLD lately Mr. Frank?  The gold traders clearly believe The Fed has every intention of re-creating Weimar Germany!

Justified or not, those are the current "expectations" that secrecy has brought us. 

How much worse than Weimar could expectations get Barney?  Are you now splitting hairs between Weimar and Zimbabwe?

“Everybody would like to beat up on the Fed and call them the bad guys,” Watt said during debate on the measures. “So if we make this decision on a political basis, I know what the result will be.”

“This committee is called upon to transcend the politics of the moment and do what is in the interest of the country,” Watt said.

Really Mr. Watt?

Are you advocating the "best interest of the country" or are you advocating for the best interest of Bank of America, with their corporate headquarters in your district – a firm that has been the beneficiary of unprecedented Federal Reserve largess along with a healthy dose of arm-twisting?

Let’s face the facts here.  There are many people (myself included) who believe The Fed is "the bad guy."  They have behaved as a dictator, they have in my opinion ignored black-letter law and they have intentionally debased the currency of this nation for the explicit benefit of their bankster buddies while screwing the middle class.  The Fed’s intentional bubble-blowing and now its "zero interest rate" policy has fostered a dollar carry trade now estimated to be over $500 billion – a carry trade that like all others through history will unwind in an uncontrolled and disastrous manner, trashing our economy and markets.

If all this was an "emergency response" that could not have been avoided I might even overlook it – after all, this has been a time of crisis. 

But it was and is not.

No, The Fed is why we’re in this mess in the first place!  They have been responsible for every asset bubble of the last 20 years – intentionally so.  Greenspan’s foibles over the last 20 years, and now Bernanke’s, have guaranteed a complete "hands off" approach to risk by financial institutions and regulators, with both being comfortable in the knowledge that the Fed both could and would simply print up more "funny money" and shower it from helicopters if anything went wrong. 

Indeed, Bernanke was dubbed "Helicopter Ben" years ago for suggesting exactly that response to a monetary crisis – that is, he propounded an intent to intentionally destroy every saver’s wealth, with the same effect on the victims – in this case the prudent in this nation – as if they were all subjected to armed robbery.

The Fed has intentionally ignored banks buying hundreds of billions of dollars worth of so-called "hedges" (CDS) from AIG, even though it knew or should have known AIG had no money to pay off on those instruments.  It has permitted banks under its direct supervision to create and trade hundreds of trillions of dollars in notional value of derivatives ($605 trillion according to the BIS as of June 2009) traded with zero transparency over the counter – an amount so staggering that if these banks’ net exposure is even one percent of their notional value it is sufficient to bankrupt every large banking institution in the country several times over and if it is just two percent the net exposure to loss approximates US GDP!

It looked the other way on purpose while the large banks and other financial institutions put together garbage securitizations chock full of liar loans and other exotic products that the producers knew would never be paid as agreed – securitizations they were so sure would default that they were shorting them while selling them to their "marks", er, "customers."

The Fed sat back and supported, rather than speaking against, Hank Paulson’s entreaty to have the leverage limits removed from Investment Banks in 2004 - the very feature that was directly responsible for the failure of Bear Stearns and Lehman Brothers.

The Fed has not only allowed banks to circumvent leverage limits and reserve requirements through the abuse of off-balance-sheet vehicles and sweep accounts, it lobbied for and received from Congress the right to set the required reserve ratio for banks TO ZERO in the EESA/TARP legislation – a change buried in the law that received almost no attention (except by myself and a few other bloggers!)

When the crisis began The Fed responded by loosening leverage limits further through the issue of literally dozens of "23A" exemptions to Fed Regulations – including institutions that later failed.  The damage done to the financial system was thus dramatically increased by allowing these firms to increase their exposure when they got in trouble rather than strictly limiting it as regulations allegedly required.

The Fed refused to crack down on predatory mortgage, credit card and consumer lending until literally forced by Congress, which passed the credit card bill over its objections.  Until threatened with same, the very same Fed refused to intervene in the practice of automatically "opting in" customers for "overdraft protection" on ATM and point-of-sale charges, going so far as to permit banks to display ATM balances that included uncleared funds so as to encourage customers to generate overdraft charges by deception!

The public is well-justified in viewing The Fed as a "villain" because it is.  Whether through active malfeasance or simple idiocy The Fed has been and is directly responsible for the impoverishment of millions of Americans who were punished for their imprudent borrowing while the imprudent lenders, who should have also gone bankrupt, were protected with money extracted by force from the very same people the lenders screwed!

Here’s the list of Representatives that voted against stopping the daily violations of America.  They voted to allow The Fed to have their way in secret, to debase the dollar and destroy Americans’ purchasing power, to double the price of oil and essential energy products, to fund chicanery and even protect those who commit fraud.  Worse, they violated their oath of office to uphold and defend The Constitution, which says on this matter:

Section 8. The Congress shall have power to…..

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

The Federal Reserve does not have the power of currency debasement (or the lack thereof) – Congress does, and with good reason.  Congress is accountable to you, the people. 

The Fed is, at present, accountable to nobody.

Each and every one of the Representatives listed below, by voting "NAY" today, has violated his or her oath of office, has committed an act of violence against The Constitution of The United States, is unfit for their office, and must resign:

NAY – Rep. Barney Frank, MA
NAY – Rep. Paul E. Kanjorski, PA
NAY – Rep. Maxine Waters, CA
NAY – Rep. Carolyn B. Maloney, NY
NAY – Rep. Luis V. Gutierrez, IL
NAY – Rep. Nydia M. Velázquez, NY
NAY – Rep. Melvin L. Watt, NC
NAY – Rep. Gary L. Ackerman, NY
NAY – Rep. Gregory W. Meeks, NY
NAY – Rep. Dennis Moore, KS
NAY – Rep. Michael E. Capuano, MA
NAY – Rep. Carolyn McCarthy, NY
NAY – Rep. Joe Baca, CA
NAY – Rep. Stephen F. Lynch, MA
NAY – Rep. Brad Miller, NC
NAY – Rep. Al Green, TX
NAY – Rep. Emanuel Cleaver, MO
NAY – Rep. Melissa L. Bean, IL
NAY – Rep. Gwen Moore, WI
NAY – Rep. Keith Ellison, MN
NAY – Rep. Ron Klein, FL
NAY – Rep. Charles Wilson, OH
NAY – Rep. Joe Donnelly, IN
NAY – Rep. Bill Foster, IL
NAY – Rep. Andre Carson, IN
NAY – Rep. Mary Jo Kilroy, OH
NAY – Rep. Jim Himes, CT

Why don’t you give ‘em a call and tell ‘em what you think of ‘em. 

I’m sure they’d love to hear from you – you can find their phone and fax numbers at http://www.house.gov.

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