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The GAO Must Perform a Diligent Independent Audit of the More Than $2 Trillion Issued by the Fed

The Huffington Post

Thursday, May 13, 2010

by Robert Auerbach

Senator Bernie Sanders' amendment for a partial audit of the Federal Reserve's operations by the Government Accountability Office still needs an important requirement. The GAO must perform a diligent independent audit of the more than $2 trillion issued by the Federal Reserve in the United States and sent to foreign countries. The GAO should pay particular attention to Senator Bernie Sanders' floor statements in presenting the amendment so that the intent of the Congress is carried out. If the GAO relies blindly on the veracity of Fed records without thoroughly auditing the source details, the audit will fail.

I have had experience with accounting cover-ups by the Federal Reserve when I assisted House of Representatives Financial Services Committee Chairmen in their investigations for 11 years. These problems included severe accounting problems in the cash section of the Los Angeles Branch of the San Francisco Federal Reserve Bank which held $80 billion in currency and coin in their vaults according to Financial Services Committee Chairman Henry B. Gonzalez. I also assisted Chairman Gonzalez in uncovering corrupted accounting problems at the Boston Federal Reserve Bank that was handling the Federal Reserve's 50 plus contracted airplane fleet. Chairman Gonzalez wanted the Janet Reno Justice Department to pursue the corruption that was found. Justice diverted it to the Federal Reserve's Inspector General. He is internally appointed by the Fed officials who also authorize his budget . The Fed closed down the airplane operations at the Boston Fed Bank and moved it to the Atlanta Fed Bank. They tried to take action against their own courageous Fed employees who testified in Congress in 1997 and helped expose the corrupted bookkeeping.These are some of the details that are described in my book Deception and Abuse at the Fed. Chapter 5, "Valuable Secrets and the Return of Greenspan's Prophetic Touch," presents additional severe problems at the Federal Reserve which should draw the close scrutiny of competent auditors. These problems have direct bearing on faulty Fed operations and should not be hindered by waving the Fed's mantra of independence. The Fed operates on a budget which is internally approved and is not even carried on the federal government's budget . At the very least there should be accountability for what they have done. That will not harm good monetary policy that can be carried out in large part by members of the Fed's Board of Governors who can serve for 14 years and can only be fired by impeachment which has never happened. Accountability will help to prevent corrupt operations.

What follows is an excerpt from Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank, 2008. Courtesy the University of Texas Press.


Chapter 5 -- Valuable Secrets and the Return of Greenspan's "Prophetic Touch"

Billion-Dollar Secrets

Information about plans by the Federal Reserve to change interest rates could be turned into huge profits if it were known before the policy was made public. And it is wishful thinking to pretend that millions, easily billions, of dollars have not been made using just such inside information from the Fed. The Fed's secrets have been widely disseminated to its employees and the favored few. Suppose someone was able to obtain definite information that the Fed was going to lower short-term interest rates (which would translate into higher prices for short-maturity bonds--interest rates and bond prices are inversely related) and that such a change in policy was not publicly known or anticipated. He or she could buy a security in a market outside the United States, say, a security sold in Europe that entitles the holder to exchange it for a bond in the future--a bond futures contract.1 The asset could be sold for a higher price after the Fed moves and bond prices rise. These securities may be purchased for less than half a percent of their face value in cash. A trader who purchased a large number of these securities could earn a very large profit in one day from a drop in interest rates. Rather than directly take a position in the market, a leaker or the favored leakee could sell the information to others.

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