At a recent hearing of the House Financial Services Committee, freshman Rep. Alan Grayson tenaciously questioned various officials of the Federal Reserve, including the Vice Chairman Donald Kohn, regarding the Fed's refusal to disclose (both to the public and to Congress) even the most basic information about what has been done with the $1.2 trillion the Fed has spent since September 1 -- including even revealing which institutions have received those funds.
The exhange between Rep. Grayson and Vice Chairman Kohn -- the video of which is below -- struck me as significant for several reasons, beginning with the fact that this was Rep. Grayson's very first hearing ever as a Congressman, and he was more vigilant and aggressive in demanding accountability from a high government official than many of his colleagues in Congress have ever been even after serving many terms. Additionally, his adept questioning (Grayson was a successful trial lawyer before being elected to Congress) elicted how high officials truly view Congress. Grayson's questioning of Kohn immediately sparked a controversy that will almost certainly lead to greater pressure on the Fed to account for how this money was spent.
I invited Rep. Grayson on to Salon Radio to discuss the complete lack of transparancy surrounding the bailout as well as more general issues regarding oversight and accountability. His answers were, in my view, as illuminating as they were encouraging, and illustrates that replacing the stagnant, status-quo-perpetuating Congressional incumbents in both parties with people who have the right mindset -- the principal goal of Accountability Now (many new details on that shortly) -- can make a meaningful difference in how things in Washington proceed.
The discussion is roughly 20 minutes and can be heard by clicking PLAY on the recorder below. A transcript is here. I recommend first watching the 5-minute video of Grayson's questioning of the officials from the Federal Reserve:
To listen to this interview, click PLAY on the recorder below:
Glenn Greenwald: My guest today on Salon radio is Congressman Alan Grayson, who is a freshman Democrat representing Florida's eighth congressional district. He, this past November, defeated a four-term Republican incumbent, and became the representative from Florida's eighth district. Congressman, thanks very much for joining me.
Alan Grayson: Yes. Thank you, Glenn.
GG: I wanted to ask you principally about a hearing that recently took place, I think ten days ago or so now, of the House Financial Services Committee, of which you are a member; that's the committee chaired by Barney Frank and that does the most work in the House on the various issues related to the bailout. And I'm going to put a YouTube up to accompany the interview.
It was a fairly confrontational or I guess you could say spirited exchange that you had in questioning some Federal Reserve officials, and I want to ask you a couple questions about the specifics of that. But first I want to ask you, was that your first committee hearing that you had--the questioning that you did there?
GG: And, what struck me about it was that it was, as I indicated, I think you could describe it as fairly aggressive; it was certainly spirited and it was professional and civil. But you were fairly tenacious in your questioning, and I think there are lots of members of Congress who are there for many years who never are that aggressive in their attempt to get information from high-level executive branch officials.
Is that something that you were reluctant to do? Why is it that you felt that there was such a need to be so relentless in getting the information that you were attempting to get?
AG: Well, I'll take your word for it that more senior members don't do it, and maybe I just didn't know any better.
GG: Right. Maybe, but there had to be some impetus behind the line of questioning that you decided to take. You obviously felt like there was information that you needed to get and that wasn't forthcoming and it was important to get. So I'm just wondering what the thought process was behind why you felt like the information that you were seeking was important.
AG: People come to these hearings with different things in mind. Some people go with the idea of just making a five minute statement on the record, other people go with the idea of making some kind of point with the witness on something that the witness doesn't really necessarily have information on. I went there with the idea of actually learning useful things. Things that people needed to know.
I've been hearing since September that the Federal Reserve balance sheet has just exploded. That they've added $1.2 trillion of debt to the Federal Reserve balance sheet without telling people what they were getting in return or even who was getting the money. And, that seems to me to be really important information. I was delighted to have somebody in the witness chair who might actually know the answers to my questions, and I wanted to know the answers to my questions, so I asked them.
GG: The witness with whom you had the exchange primarily was Donald Kohn, who is the Vice-Chairman of the Federal Reserve, just under Chairman Bernanke. The information specifically that you were seeking, mostly was to know, very simply, which institutions had been the recipients of this $1.2 trillion that had been added to the Federal Reserve balance sheet. Why do you think that information is important to get?
AG: Well, one of our fundamental constitutional responsibilities as Congress, is to make sure that the government's business is conducted properly. That's called oversight. And, I think the expenditure of $4000 for every man, woman and child in this country, is something deserving of some degree of congressional oversight.
If they won't tell us who got the money, and they won't tell us what they got in return for the money, then I think we might be in dereliction of our duties. We need to find out.
GG: You weren't ultimately successful in that five minutes that you had in terms of getting the specific information that you were seeking. I think the vice-chairman told you at first that he didn't know which institutions received the money, which I guess, saying that "off the top of my head, I'm not able to give you the full list sitting here," is perhaps reasonable. But since then, since that hearing 10 days ago or so, have you obtained or received any more information that sheds light on which institutions received this money?
AG: No, but what we have obtained is a commitment from Barney Frank, the chairman of the committee, that there'll be another hearing with the Federal Reserve chairman himself, Chairman Bernanke on the 9th. And we'll be able to ask the same questions to him and some more questions beyond that, and try to probe about what this federal agency has done with $1.2 trillion dollars of our money.
GG: So, other than what's been in the press reports, and there's been little, scattered bits and pieces, isolated information here and there about which institutions have received the money. Some of the chairmen of these institutions and other officials have spoken. So there's anecdotal evidence about some of the participating institutions. But as a member of the Financial Services Committee, you don't have any information beyond what's in the public sphere about which of the specific institutions have even received the money, let alone what they've done with it or how they've accounted for it?
AG: No. And I find that really very disturbing. It's our money. We're entitled to know what happens to our money. The Federal Reserve seems to depict itself as the wizened old man behind the curtain, and they're the Wizard of Oz, and we're just supposed to assume that everything that they're doing is okay.
Well, you know, that's not why we have a government; if that was our prevailing philosophy of government, we wouldn't need a government, we could just have an emperor or a dictator. We have a government that consists of checks and balances, of oversight, of people coming together in order to make sure that the right things are done, and a government that is basically run on the philosophy that two heads are better than one, and two thousand heads are even better than two.
What we're seeing here is one man, the head of the Federal Reserve, taking it upon himself to make unbelievably important decisions. Decisions that incur debts for us, the American public, to the tune of $4000 per person, and taking upon himself to do that without telling any of us what he's doing. I think that's disturbing; that does sound to me to be edging over into the general direction of a dictatorship, and I want to try to find out where the money went so we can know whether he did the right thing or not.
GG: One of the...
AG: I'm trying to make sure this doesn't happen in the future. To me, this is a serious breakdown in the way that the government should conduct its business.
If anybody, anybody else, say Barack Obama, told us that he was going to spend $1.2 trillion dollars, he wasn't going to tell us who's going to get the money, or what he'd get in return, but we should just trust him, people would know there was something wrong with that. And there's something wrong with this, too.
GG: The argument that he made--he did give you a reason why he felt as though you shouldn't get that information, or at least why it ought not be publicly disclosed--was that if these institutions know that their receipt of these funds will be made public, that they will refuse to participate in the bailout program, that they won't take the money. Do you find that to be persuasive, and why do you or don't you?
AG: I don't. And I don't find it too persuasive for a couple of different reasons. The first reason is that by law the Federal Reserve is the lender of last resort. So the people who borrowed this $1.2 trillion from the Federal Reserve literally have nowhere else to go. That's the principle, the underlying principle that governs the Federal Reserve's operation. It's why we have the Federal Reserve. We have a Federal Reserve to serve as the lender of last resort. So they would take the money because they'd literally have no choice.
The second reason is that the whole reason why we have securities law in the first place, why we have a Securities Exchange Act, is to allow investors to make informed decisions. So if in fact it's true that Citicorp took $50 billion from the Federal Reserve, certainly the people who are investing in Citicorp need to know that. Frankly all the rest of us do, too.
If these institutions are going to fail at some point in the future, then people need to be able to protect themselves against that. It doesn't seem to me to be a good idea in general to try to deliberately keep people in the dark, under the assumption that if they knew the truth, they might actually act on it.
Think that through a little bit. What he's saying is, we wouldn't want people to know that $50 billion went to institution X, because if they knew--well, what? What would they do? The fact is the matter is that they would understand the truth of the matter, which is that institution X is pretty shaky, and maybe institution X doesn't deserve their money. So, what we have is the collaboration between the Federal Reserve and failing institutions to keep the public in the dark.
GG: What struck me most about the exchange was that, although it was specific to the discussion of transparency regarding the bailout, and whether the executive branch has the unilateral power to make all the decisions, that it really can be generalized to almost every significant policy dispute that has taken place over the last eight years. That has been the message sent by the executive branch and largely accepted by the Congress; that is, it's better that the public doesn't know than if they do know, and that we, the executive branch, are the ones that ought to decide. And not only don't you have a role to play in the decision, you don't even really even have a right to compel us to tell you.
One of the things that you said after the vice-chairman gave his explanation as to why he thought it was best that this information be concealed, was you said, wasn't that for us to determine, not you. What did you mean by that?
AG: I mean that, the Federal Reserve seems to think that it's above the law, or beyond the law. And that said, they have created a shroud of secrecy without any clear legal authority just because they think that's what's good for us. And that kind of paternalism is definitely contrary to democracy.
But, I think you can go back further than eight years, to find analogies to this situation. And what he reminds me of--and I'm just barely old enough to remember this--but what he reminds me of is the secret war in Cambodia. An entire war launched by the Nixon administration against a country of eight million people, and if reporters asked, what's going on in Cambodia, they said, nothing. Nothing's going on. Don't look over there, look over here. Don't pay any attention to that. And of course, the wisdom of that war led directly to two million people losing their lives.
GG: Yeah. Absolutely. Now, let me ask you about that failure on the part of, I think, the Congress, to impose these disclosure requirements in the first place.
There was a controversy, originally, over the bailout bill, was when Secretary Paulson sent his draft over to the Congress, it was scandalously devoid of any sort of guidelines or requirements or oversight. It was basically hand me $700 billion and I'll spend it however I want. There was supposedly this effort on the part of the Congress to fix that proposal and make it filled with all sorts of important disclosure and transparency and oversight requirements, and so, here we are, though, two months later after it passes, after the Congress votes for it, the president signs it into law.
There doesn't seem to be even the most minimal transparency requirement where you're not even able to find out which institutions are receiving the money. So, is it really a failure on the part of the Congress, originally, not to have required this disclosure?
AG: No, I think if you look at this particular situation, the Federal Reserve is assuming that it has certain authorities in a very aggressive way, based upon laws that were written under entirely different circumstances 70 years ago. You know, if somebody said 70 years ago to Mr. Mellon, the Secretary of the Treasury, the Federal Reserve would like to issue $1.2 trillion to favored institutions, he would have said, what are you talking about, there isn't $1.2 trillion in the entire world. And now they're taking that as some sort of license, 70 years later, to do what they want to do, and keep it secret.
It's utterly senseless. Not only does it completely mock the idea of checks and balances in government, and mock the idea of democracy, but it opens us up to a tremendous possibility of corruption.
Let's suppose for the sake of the argument, that Mr. Bernanke decides to give a billion dollars to a fledging institution called the Dick Cheney Savings and Loan, and its only asset was a numbered Swiss bank account. How would we know? How would we know that that happened? The answer is, if you take the Federal Reserve's view of things, we wouldn't. And that's disastrous.
AG: ...that kind of power is just disastrous.
GG: Because if Dick Cheney knew that you were going to find out, then he wouldn't take the money, and we wouldn't want that, I think the theory goes. The last question that you asked the vice-chairman is--it was really more of a comment, but actually you phrased it as a question--was you asked him, is it the case that the reason you don't want this information disclosed is because you believe the public will be angry over how their $1.2 trillion has been spent?
What kind of concerns do you have in that regard? You just described a hypothetical. Do you have specific reasons to believe that there would be a political controversy if some of this information were revealed?
AG: It's because I'm angry. I have a family of seven; just myself, my wife, my five children. They have, in our name, issued $28 000 of money to people who I don't know, but I still have to pay the money back. It's crazy. How could anybody be other than angry, if they see something like this happening?
You know, if they took that same money, $4,000 for every man, woman and child in America, and they simply wrote checks to people, that would end foreclosures, it would stop the drop in the housing market, it would put a significant dent in our unemployment problems. And instead they take that money, $4,000 for every man, woman and child in America, they lend it to people who we don't know, they get back stuff we can't understand, and we're the ones who are left holding the bag.
A colleague of mine recently pointed out to me, Wall Street is the only place were you can get mugged and then the mugger sends you a bill. And we're left with that bill. That bill of $4000 for every man, woman and child in America, and all the Federal Reserve can tell us is, it's okay, don't worry about it, everything's going to be fine. I think we need more specific information than that.
GG: Now, there was just a vote in Congress, with regard to whether to release the second half of the $700 billion, the second $350 billion installment. How did you vote on that? Did you believe that that money ought to be released? Does the economy require that second half of the bailout be used, in your opinion?
AG: Well, that's two different questions. I voted against the release of the money, even though I think it is required, because that money has not been properly spent. We do need another $350 billion; we need more than $350 billion, but we don't need it for Wall Street, we need it for us.
GG: How do you want to see that money, plus whatever else is necessary, spent in order to alleviate these economic problems?
AG: I think we need to go back to the source of the problem. The source of the problem is the fact that collapsing housing values has made most of the country insolvent. And when I say most of the country, I mean most of the people in this country, not Wall Street. That has put a giant hole in everybody's balance sheet, eliminated the credit-worthiness of millions of people, and put millions more people out of their homes.
What we need to do is think hard about what we need to do in order to improve the housing market; that's where I'd like to see this effort directed. And it doesn't necessarily have to be writing checks.
If we did things like, let's say, temporarily suspend the requirement of a down payment for an FHA loan, or if we temporarily lifted the ceiling on FHA loans, which are limited by law to a certain amount of money, that itself would help solve the problem of the housing market. There's a lot of pent-up demand, there's people who are sort of stuck in houses that are no longer suitable for them, people with empty nests, people with new children in the house, and they can't move because the whole market is stuck.
What we need to do is add some lubrication to the market in the form of credit that the government needs to provide, because the banks are not providing it. What we're doing in reality, is we're lending the banks billions upon billions upon billions of dollars in the hope that they will lend it back to us. I say, let's cut out the middle man.
GG: Right, and I said last question, the question before, but I promise I mean it this time. The last question is this: Have you received any assurances, preliminary or otherwise, from the Federal Reserve or Chairman Bernanke's office, that this information specifically will be forthcoming at the next hearing on February 9th, and if it isn't, do you have any intention of doing things like writing legislation to compel its disclosure, or have you given thought to what can be done if they continue to withhold it?
AG: I think that the chairman made it clear that this is a problem. It's a problem that's now in his mind as well as our minds, and that it could ultimately lead to legislation to require the Federal Reserve tell us what it's doing with the money.
GG: Very good. Well Congressman, thanks so much for joining me, and thanks for continuing to pursue this issue, which I know is of great interest to a lot of people. It's great to see any members of Congress demanding this sort of transparency and oversight, and I appreciate that also.
AG: Well, I appreciate it too, I'm just a vessel here; I'm just doing what I think that ordinary people would be doing if they were in my position and had the chance to ask these questions and basically what the guiding principle is here to ask the questions that need to be asked to get the information that we need in order to make sure that the public is protected. Thank you.
[Transcript courtesy of Thames Valley Transcribe]