The White House Should Stop Pandering to the Street and Support Three Critical Banking Reforms

Robert Reich
Friday, May 7, 2010

The White House opposes three important financial reforms that have drawn bi-partisan support in the Senate. It should reverse course.

1. Require the Fed to disclose the entities it lends to. There’s no reason the public should be kept in the dark about who benefits when the Fed departs from its traditional interest-setting role and chooses to provide credit (or in Fed parlance, “open its discount window”) to particular companies or entities. To the contrary, a well-functioning capital market and a well-functioning democracy depend on full disclosure about who the Fed picks for such special treatment and why.

Senator Bernard Sanders, Independent of Vermont, pushed an amendment requiring that the Fed be subject to a public audit that reveals which specific companies and entities the Fed is supporting with extra loans. The measure drew support on both sides of the aisle, including conservative Republicans like David Vitter of Louisiana. But Sanders’s amendment met stiff opposition from the White House and the Fed. Both argued that it would undermine the Fed’s independence. That’s a red herring. Fed’s independence is important when it comes to basic decisions about monetary policy and short-term interest rates, but not about which companies and entities get special treatment.

Bowing to the pressure, Sanders has agreed to alter his proposal. He says his new amendment would still force the Fed to disclose many of its steps to bail out banks. But what why shouldn’t all of the Fed’s special machinations be disclosed? And why limit disclosure only to the banks that the Fed supports and not other firms or entities? Sanders shouldn’t retreat on this.

(More here.)