Deception and Abuse at the Fed

Deception_fedBloomberg’s  Caroline Baum reviews the book Deception and Abuse at the Fed:

"Until the U.S. Federal Reserve took the unprecedented step of financing the purchase of Bear Stearns Cos. by JPMorgan Chase & Co. in March, criticism of the central bank was largely confined to its conduct of monetary policy.

The institution itself usually got a pass. Lone voices that dared to knock the Fed were drowned out by its supporters in the financial community — the very bankers the Fed regulates.

One of those lone voices, U.S. Representative Henry Gonzalez, came from the Lone Star State. Neither the power of the Fed nor the near-mythic status of its longtime chairman, Alan Greenspan, deterred the late Texas populist.

As chairman of the House Banking Committee from 1989 to 1994, he relentlessly pressed for public scrutiny of what he called a secretive agency wielding enormous power, writes Robert D. Auerbach in his convincing first-hand chronicle of Gonzalez’s battle, "Deception and Abuse at the Fed."

Auerbach details how the Federal Reserve is "the most
powerful peacetime bureaucracy in the federal government." While most of congress and Wall Street  were lauding the "genius" of the Maestro — FOMC chair Alan Greenspan — few seemed
to notice that Fed operated with almost no public
accountability. The singular exception: Henry B. Gonzalez (D-TX)—chairman of the U.S. House of Representatives
Financial Services (banking) Committee.

The author documents what he terms abuses at the Fed:

•  Blocking Congress and the public from holding powerful Fed officials accountable by falsely declaring—for 17 years—it had no transcripts of its meetings;

• Manipulating the stock and bond markets in 1994 under cover of a preemptive strike against inflation;

• Allowing $5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank—the result of faulty bank examination practices by the Fed;

• Stonewalling Congressional investigations and misleading the Washington Post about the $6,300 found on the Watergate burglars.

I haven’t read this yet, but it certainly looks interesting . . .



Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank

Robert D. Auerbach
June 2008

Greenspan, `Master of Garblements,’ Fares Poorly in Book on Fed
Caroline Baum
Bloomberg, June 5 2008

What's been said:

Discussions found on the web:
  1. Ed H commented on Jun 5

    I saw this column as well and posted a similar comment on my blog. What I think would be interesting is to see a contrast in how he views Volcker versus Greenspan, since all the Fed chairmen were criticized according to the article.

  2. Gonzalez commented on Jun 5

    I can’t believe you mentioned Auerbach but not RON PAUL (also from Texas), who will be remembered as the greatest congressman in US history.

    Ron Paul has long voiced his opposition to these (and other) abuses of this terrible bureaucracy, which is destroying the economy of this country before our very eyes. In a year of two, this will be abundantly clear.

  3. JJL commented on Jun 5

    I have read the book, it is pretty good at showing the baloney that was FED speak. Example from page 14 hardcover a usual statement by former FED head Burns:
    “I would like to see interest rates where they are, or even come down, but they may have to go up”.
    As always, no matter the outcome, the FED is perfect in their predictions. How sick and sad.

  4. Jim Haygood commented on Jun 5

    Henry Gonzales as leading Fed critic? Man, he hardly laid a glove on ’em!

    The only serious Congressional critic the Federal Reserve ever had wuz mah ol’ Congressman from the First District of Texas, Wright Patman. Get a load of this:

    “Wright Patman … was chairman of the House of Representatives Committee on Banking and Currency for 40 years. For 20 of those years, he introduced legislation to repeal the Federal Reserve Banking Act of 1913.”

    If you don’t call for the outright REPEAL of the Federal Reserve Act — not just to ‘reform’ it, but to SHUT THE SUCKER DOWN — then you ain’t no critic; you just a p***y.

    Ron Paul for Fed chairman !!!

  5. Steve Barry commented on Jun 5

    Just had a weird premonition…it’s November…Obama just wins the presidency…the current administration immediately turns off all spin machines and behind the scenes machinations on the economy…Market crashes and common perception blames it on Obama getting elected and Wall Street being unhappy.

  6. Alfred commented on Jun 5

    Talking about deception.

    The Fed released Flow of Fed Funds for the first quarter today. In section F.108, assets and liabilities of Federal Reserve Banks and Treasury monetary accounts that supply or absorb bank reserves, bank loans n.e.c. were listed as assets of $159 billion, for the first time.

    As far as I can tell “not elsewhere classified” (n.e.c.) does not mean that these loans are investment grade. The Fed has told us that the collateral they accept in exchange for treasury securities at the discount window, has to be investment grade.

    I assume that Bear’s $29 billion and other collateral from commercial banks and broker dealers are part of the $159 billion. These loans could be highly illiquid collateral with no market dumped on the Fed’s balance sheet.

    Am I way off? Any input much appreciated.

  7. Steve Barry commented on Jun 5

    Is the Nasdaq manipulated? How is Chinese Internet stock BIDU up 40% while Shanghai composite is down 20%

    BIDU vs Shanghai

  8. Francois commented on Jun 5

    “The Fed has told us that the collateral they accept in exchange for treasury securities at the discount window, has to be investment grade.”

    Investment grade…Does the Fed presume we are supposed to be reassured by this expression? What exactly does that mean?

    After all, CDOs and CDSs had a lot of investors; did that make them “investment grade”?

  9. Steve Barry commented on Jun 6


    For many years, in theory, a bond rated BBB- or higher was considered investment grade…below that it was called “junk”.

    Those who have read my posts know I won’t stop there though. Many ratings over the past few years are highly suspect…Markit is quoting BBB- sub-prime tranches at less than 5 cents on the dollar…basically used toilet paper.

  10. Risk Averse Alert commented on Jun 6

    It seems probable the coming period might be termed by historians the “Incrimination Years.” We’ve had our Great Depression. Now come our Great Calamity…

  11. DavidJ commented on Jun 6

    I object to the disparaging of Rep. Gonzalez, even if half intended as humor. The fact of the matter is that he was an admirable, honest public servant who spent years fighting for what he thought right.

    I thought so much of him that I wrote him and asked him to run for President before the 92 election cycle. This was in large part due to his views regarding the Fed. He kindly wrote me back explaining why he chose not to do so.

    I don’t think that calling him bad names simply because he took a different approach than Ron Paul is warranted. Paul, too, is an honorable man, but as a matter of policy, some of us prefer more “liberal” (in the best sense of that term) and not libertarian solutions.

    I was quite sad the day I found out he died. It seems to me that we could use a few more elected officials like Gonzalez and I look forward to reading this book.

  12. Jim commented on Jun 6

    The Fed hid M3 a while back to keep us in the dark about money supply inflation. The drop in value of the dollar and rise in commodity prices reveal the truth however. Yesterday’s big pop in the Dow had the stench of Working Group intervention: up sharply at the open on the very day bad news was to be announced, then let the shorts keep the rally going. What bad news? AMBAC and MBIA were to be downgraded, thus lowering the value of bonds they insured which are held by banks, insurance companies, etc, etc. And oil up 6 bucks to boot. It ain’t Federal, and there ain’t no reserve.

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