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The weird relationship between 'Audit the Fed' and breaking up the banks

PH2010042903428.jpgAs the FinReg process has pushed forward, controversy has centered around two amendments: Bernie Sanders's proposal to audit the Federal Reserve and a proposal by Sherrod Brown (pictured) and Ted Kaufman to break up large banks. Grouping the two of these together has been a little bit weird; one transforms Wall Street while the other directs a government agency to keep us abreast of what they're doing with our money.

But the Federal Reserve has fought the effort for transparency as if it were an effort to break them apart. Ben Bernanke's letter on the subject sounds alarmed, to say the least. But because the Fed was never able to make a very good case that their new powers shouldn't result in somewhat more transparency, they've lost. Now, a modified version of Sanders's amendment seems sure to pass.

Conversely, the Brown-Kaufman proposal to break up the banks failed last night, 61 to 33. In some way, I'd say you're seeing the fundamentals of these policies assert themselves. Audit the Fed is not a radical bill and it's actually a bit hard to argue against it. Breaking up the banks makes a fair amount of sense, but it's substantively a lot more radical than anything else in the legislation.

Photo credit: Richard A. Lipski -- The Washington Post.

By Ezra Klein  |  May 7, 2010; 12:22 PM ET
Categories:  Financial Regulation  
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Mr. K, one of the reasons that Brown-Kaufman failed is because the President wants something else.

Look for a new amendment more in line with the President's wishes to emerge soon.

Posted by: MsJS | May 7, 2010 12:45 PM | Report abuse

Radical Schmadical. Per Bernie Sanders;

"6 banks control 63% of our Gross Domestic Product"

That's not radical?

The financial sector controls our government. We, as United States Citizens, no longer have a say in economic decisions made in Congress. This is the end of America as we know it.

Posted by: Gates9 | May 7, 2010 1:30 PM | Report abuse

Congress and reasonable people can think couple of reasons why breaking big banks is not particularly very exciting:

- How come we allow behemoths like Walmart, Exxon, etc.? We do not talk about breaking them or breaking Microsoft or Apple along product lines. Then why banks? If they pose risk to national finances, then the same way regulation avoids any of those risks in case of Walmart and Exxon; should avoid those risks in Bank case too. Many remedies have been proposed - different classes of capital tiers for large banks with inter-convertibility among those classes in times of crisis, or counter cyclical capital requirements and so on. Ezra has mentioned many of those. Martin Wolfe in FT has mentioned many of those. So it is the 'regulation business' in the end and having those regulations right is the true answer for Big Banks, breaking them does not sound that much credible.

- If USA does not have any Big Banks left; USA banking will be in no way competitive with banks of many other countries like China, India, S. Korea and so on. It is the question of competitiveness.

Posted by: umesh409 | May 7, 2010 1:31 PM | Report abuse

I have to imagine some of it is the pedigree of the thing, since the original audit the fed proposal was drafted by Ron Paul, who very literally wants to see the Federal Reserve destroyed, and who rather transparently hopes that an audit will lead to that.

Posted by: usergoogol | May 7, 2010 1:32 PM | Report abuse

"But the Federal Reserve has fought the effort for transparency as if it were an effort to break them apart."

No this is not about breaking them apart, it's about getting rid of the FED all together. The USA does not need to pay them interest for printing our money. Our constitution allows our government to print their OWN money. Tell us who owns the Fed and who was at Jekyll Island when this criminal organization was established.

Posted by: owsmokey | May 7, 2010 2:14 PM | Report abuse

The Sanders amendment could help to set the stage for something close to the Brown-Kaufman approach in the future.

I would not be surprised if the audit revealed even more starkly some of the costs associated with having TBTF financial institutions. It's my understanding too that the Sanders amendment will make this information public, which could be significant.

Posted by: JPRS | May 7, 2010 2:27 PM | Report abuse

the audit the Fed movement is a strike at the heart of the infrastructure that brings us monopoly capitalism.
without the FED the purse strings that finance the perpetual wars that are supposed to lead us to peace.

without the FED. the people would have to decide .. between say funding a war or providing health care for it's citizens.

no more ponzi ... an audit of the Fed would open the door for freedom .vs the free to do as we are told BS that passes for freedom in the land of the free.

the FED is in a full court press to usher in a Global Governance as it watches "Sampson" dismantle the Temple right when they over reached and tried to turn the financial crisis into the introduction of Global Governance.
All done in secret ... if done in the open we could have had a battle of ideas but no.
The arrogance of the Capital Class that has captured our media and political class thinks is knows better than the people ...
that era is over.
Transparency now.

Posted by: AmericanSpirit | May 10, 2010 1:38 PM | Report abuse

We the People want an up or down vote.

Then we can decide what to do come November.

the Capital Class does not even want this to come to a vote.

The people want a vote on this.

Posted by: AmericanSpirit | May 10, 2010 1:39 PM | Report abuse

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