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Bernanke May Have To Sacrifice Lending Powers Or Independence

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http://www.bloomberg.com/apps/news?pid=206...id=atdHeCJ1_K0U

The financial-overhaul plan before Congress leaves the Federal Reserve in the business of lending to everyone from General Electric Co. to investors in student loans. That makes it harder for Chairman Ben S. Bernanke to keep Congress from second-guessing what he does.

Bernanke is trying to deflect a bill, co-sponsored by 276 members of the House of Representatives, that would require audits of central bank operations, including monetary policy decisions, by the Government Accountability Office. Audits wouldn’t be “consistent with independence,†Bernanke said at a Kansas City town hall meeting July 26. “I don’t think the American people want Congress running monetary policy.â€

Unless the Fed retreats from unlimited lending, Bernanke can expect such a result, said Marvin Goodfriend, an economist at Carnegie Mellon University in Pittsburgh. The more the Fed invades the domain of Congress by supplying credit to businesses and markets outside the banking system, the more Congress will seek a hand in monetary policy, said Goodfriend, a former adviser to the Richmond Fed.

“Central bank independence is incompatible over time with all but limited, temporary last-resort lending†to banks, Goodfriend said in an interview. The Fed’s role in emergency lending “needs to be clarified before the next crisis,†he said.

Congress may demand more say over the Fed’s credit policies. Democratic Representative Paul Kanjorski of Pennsylvania is gathering signatures for a letter asking Bernanke to extend the Term Asset-Backed Securities Loan Facility.

The TALF, an emergency program that lends to investors to purchase securities backed by consumer and business loans, is set to expire Dec. 31. Bernanke told the Senate Banking Committee July 22 that it would be “difficult†to justify extending the TALF if markets return to normal operations.

Such pressure to keep some lending programs going is likely to complicate future Fed efforts to keep a lid on inflation. Bernanke’s supporters say his actions have been consistent with the central bank’s traditional role as lender of last resort.

“The Fed is best suited to go in quickly if there is a fire,†said Mark Gertler, a New York University economist and research co-author with Bernanke. “But you would like an arrangement where if the assets are held for any period of time, the Treasury takes them over.â€

The 88-page financial-overhaul plan the Obama administration submitted to Congress, written by the Treasury with input from the Fed, doesn’t limit whom the central bank can lend to or for how long, beyond the Fed’s own definition of “unusual and exigent circumstances.â€

Emergency credit policies have helped more than double the Fed’s balance sheet over the past year to more than $2 trillion, including loans to support insurer American International Group Inc. and risky assets once owned by Bear Stearns Cos.

“The Fed clearly cherishes its vast power to create and spend trillions of dollars,†Texas Republican Representative Ron Paul, who wrote the House bill on Fed audits, said on his Web site. “The only accountability the Federal Reserve has is ultimately to Congress.â€

Bernanke told Paul at a House Financial Services Committee hearing last week that GAO audits, often initiated at the request of members of Congress, could be used as a club against the Fed.

“If we were to raise interest rates at a meeting and someone in the Congress didn’t like that and said ‘I want the GAO to audit that decision,’ wouldn’t that be viewed as an interference?†Bernanke asked. “Reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions,†he said in testimony.

They are going to try and fob them off by transferring nominal ownership to another agency while changing nothing operationally.

Again.

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They are going to try and fob them off by transferring nominal ownership to another agency while changing nothing operationally.

Again.

Are you saying it would be better if the US Government excerted more control over this independant body?

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Are you saying it would be better if the US Government excerted more control over this independant body?

Yes.

It would end the whole thing much faster as the politicians open the cave of death and go spending with the self control of a starving labrador in a sausage factory.

This thing only ends one way, the question is how fast. Faster is better.

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Yes.

It would end the whole thing much faster as the politicians open the cave of death and go spending with the self control of a starving labrador in a sausage factory.

This thing only ends one way, the question is how fast. Faster is better.

:)

Marx would be proud.

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