Enter Topic, Name, or Keyword To search hundreds of Resource Articles and Reports.
FED Reference 3
The Latest Effort to Audit the FED
Contributed by: helenm@interport.net
Date: Sun, 7 Apr 1996 21:26:57 -0400 (EDT)
THE FEDERAL RESERVE BOARD (Senate - March 26, 1996)
[Page: S2841]
Mr. DORGAN. Mr. President, let me claim my 15 minutes, and I ask the
Chair to notify me when I have consumed 10 of the minutes.
Mr. President, I came to the floor today with Senator Reid from
Nevada to discuss a preliminary report that has been completed,
after some 2 years of work, by the General Accounting Office. This
report takes an extensive look into the activities and operations of
the Federal Reserve Board and its regional banks. The Federal
Reserve was created in 1913. It is kind of a dinosaur in our
Government in an age of openness, an institution shrouded in great
secrecy. But in 1913, the Congress created the Federal Reserve
Board. That was the year in which Henry Ford built the first
assembly line for the Model-T and paid people $5 a day to work to
construct automobiles.
That was a long time ago, but some things do not change very much.
The Federal Reserve still exists. It still sits as a house on a hill
with a large fence around it and invites no one to peer in to see
what they are doing. They make a substantial amount of money. They
make their own spending decisions, and they are accountable only to
themselves.
Senator Reid and I asked the GAO to do an investigation and
evaluation of how the Fed works: What does it spend its money on?
How well does it spend its money? How accountable is it?
We have some 200 pages in a report that represents the work of
nearly 2 years by the GAO. This is not a final report. It is a
preliminary report that is now awaiting comment by the Federal
Reserve Board.
The Senator from Nevada and I decided to release it now only because
last week it was made available to us, and this week the Senate
scheduled a hearing on Chairman Greenspan's renomination. We felt
that the Senate Banking Committee at least ought to have the benefit
of what is in this report prior to the hearing.
Let me discuss a couple of points in this report and ask Senator
Reid to discuss a couple of other points, because I think this will
provide a substantial amount of information that the American public
will be interested in.
You talk about the Federal Reserve Board and people's eyes start
glazing over, and there starts to develop a large fog around the
subject. This is largely because it is a central bank, accountable
largely only to itself. It conducts monetary policy by itself and
does so behind closed doors, with great secrecy.
Now, what did the GAO find? A couple of things. First of all, let me
discuss the surplus account that exists at the Federal Reserve
Board. The Federal Reserve Board has a surplus account of about $3.7
billion. In fact, the surplus account has increased well over 70
percent in the last 6 years. They have increased their surplus,
which they set aside to absorb potential losses, by 79 percent over
this period. So they have a cash stash of $3.7 billion in a surplus
account.
This account presumably is to cover their losses. But the Federal
Reserve Board has not lost money in 79 consecutive years and is not
going to lose money in the future. Last year, it had a $20
billion-plus profit, it had expenses of about $2 to $3 billion, and
it turns the rest back to the Treasury. But it still keeps a small
surplus--small by their definition, large by my definition. I come
from a town of only 300 people, and there billions mean something.
What does the GAO say about that? The GAO talks about this surplus
account by suggesting that the downward adjustment to the size of
the surplus account, or perhaps its elimination, would result in a
positive budgetary impact, and so on and so forth. Then they point
out that when they asked the Federal Reserve Board why they had this
and how they determined what they needed, they said it is arbitrary.
There is really no criteria used by the Fed to how much they need in
the surplus account. They just squirrel away as much as they want.
This is the taxpayers' money, $3.7 billion squirreled away in a
concrete edifice that houses the Fed. The GAO recommends, and I
recommend--and we will introduce legislation--that this money be
returned to American taxpayers and not stashed as a surplus in an
institution that has not had a loss in 79 years and is not going to
have a loss in the next 79 years.
There are other areas in this GAO report that also describe the
operation of the overall Federal Reserve system.
PART 2
THE FEDERAL RESERVE BOARD (Senate - March 26, 1996)
The Federal Reserve Board largely conducts monetary policy.
While I disagree with its monetary policies these days, I do not
think that the monetary policy ought to exist here in the well of
the Congress. I think it ought to be separate and apart.
But I do not agree with the Fed when it believes its mission in life
is to be a set of human brake pads designed to slow down the
American economy. They happen to believe the American economy should
not grow more than 2.5 percent. If it grows more than that, somehow
we are going to produce more inflation they think.
They are dead wrong. In the global economy, inflation is going down,
not up; wages are going down, not up. So I think their monetary
policy is wrong, and they are inhibiting growth in this country and
slowing down the American economy.
However, that is not what the GAO looked at. The GAO evaluated the
other functions of the Fed. What does it spend its money on? Less
than 10 percent of the activities of the Federal Reserve System are
spent on monetary policy activities. The rest of it is bank
supervision, check clearing, and a whole range of other things.
The Fed has counseled this country to cut its expenditures, slim
down, downsize, and streamline. What has the Fed done? The Fed has
counseled that America go on a diet and it has decided to over-eat.
Here you have a circumstance where this shows what has happened,
between 1988 and 1994, according to the GAO: Personnel compensation
up 53 percent. Benefits, that is, benefits per employee, increased
about 90 percent during the same period; equipment and software up;
buildings up.
In fact, they built one building, and they estimated, when they
decided to build the building, they would need a 7,000-square-foot
lobby. That is a pretty good-sized lobby. When they finished the
building, they had a 27,000-square-foot lobby. You ought to see a
picture of this lobby with no chairs--27,000 square foot. And that
also is in the GAO report.
If you take a look at the expenditures of the Fed, you will see this
line, which is the blue line, and from 1988 to 1994, the Fed, which
writes its own checks and decides how much it wants to spend--nobody
is suggesting that it ought to do this or ought not to do this. It
decides how much of its money it wants to keep--had a 48 percent
increase in expenditures, according to the GAO. During the same
period, the Consumer Price Index increased 25 percent--almost double
the Consumer Price Index in terms of the increase in costs down at
the Fed.
I just indicated a couple of those items, but the cost per employee
of the increases in benefits, employee benefits of the Fed increased
90 percent during the 6-year term.
So again, the suggestion by the Fed that the rest of the Government
tighten its belt, is apparently advice lost on the Fed, itself. If you
take a look at a whole range of these issues, the amount of money
spent on personnel, on buildings, on benefits, and a whole series of
issues like that, what you will find is a Federal Reserve Board that
has not had a previous audit, but a board for which an audit would
discover that it seems to be growing, while the rest of the
Government is shrinking.
Maybe, we ought to bring the Federal Reserve Board into the same
realm. I am not talking about bringing monetary policy functions
into this realm, but, maybe, the non-monetary policy functions of the
Federal Reserve ought to be subject to annual appropriations, just as
are all of the other functions of Government.
Certainly, we ought to now proceed, based on what we will find in
this report, to decide there should be every year, each and every
year, an independent audit of the Federal Reserve Board. We ought
to, based on what we have discovered in this report, decide that we
should have this $3.7 billion taken out of the surplus account that
has been squirreled away by the Fed, itself, and brought back into the
stream of income that is available to the American taxpayers. Those
are the things that we ought to do together. There are a whole
series of recommendations that Senator Reid and I will, jointly,
employ in the decision on future legislation, as a result of this GAO
report.
FRB-Part 3
THE FEDERAL RESERVE BOARD (Senate - March 26, 1996)
Let me conclude my portion of this where I began. The Federal
Reserve Board is a dinosaur; in the rest of Government, we are now
discussing openness. In the Federal Reserve Board, we still have the
shroud of secrecy. In the rest of the Government, we have the
requirement for financial accountability. At the Federal Reserve
Board, it is: We will spend what we need to spend, and we will make
that judgment.
While the rest of the Federal Government is shrinking with fewer
employees, fewer now, than at any time during the Government's
history, going back to John F. Kennedy, the Federal Reserve Board
system is growing. That is why I think, this GAO audit suggests it is
out of step and does need some correction.
Mr. President, let me yield the floor. My colleague, Senator Reid,
from Nevada, will discuss some of the other results of this GAO
evaluation.
The PRESIDING OFFICER. The Senator from Nevada is recognized.
[Page: S2842]
Mr. REID. Mr. President, will the Chair advise me, when I have used
12 minutes of my time.
Mr. President, this report that was released yesterday has taken
about 2 years for the General Accounting Office to conduct. The
findings of this report, if centered on a Member of Congress, or an
agency of the Federal Government, would be, for lack of a better
word, scandalous.
It is interesting to note the apologists that are around this
country, for the Federal Reserve Board. Take, for example, the Wall
Street Journal. They wrote an article on the release of this report,
today, but it was an apology for the Federal Reserve Board. The Wall
Street Journal looks at the Members of Congress and Federal agencies,
and anything they do, they do not dot an `i' on the right place on
the page, do not cross the `t,' they not only report it, but they
write an editorial about it.
This $3.7 billion? The huge cost overruns? Not a word said, in
today's Wall Street Journal, but it is very typical for that
newspaper.
This report raises legitimate questions about fiscal management,
within the Federal Reserve System. Some important questions should
be answered, as we proceed, Senator Dorgan and I, with our
legislative agenda, as it relates to this General Accounting Office
report. And I think there should be some questions asked, during the
confirmation proceedings, relating to Alan Greenspan.
We have been told by the General Accounting Office that this is the
most in-depth study, they have ever done of the Federal Reserve
Board. In all the time, I have been in Congress, certainly, it is the
most in-depth study, by far, that has ever been done of the Federal
Reserve Board.
I agree the Federal Reserve should be independent, and I think that
I will do what I can to make sure it is independent, but that does
not mean the Federal Reserve Board and system does not need
accountability. It needs accountability, as indicated in this
200-page report that has taken 2 years to prepare by the General
Accounting Office.
Mr. President, I think what the Federal Reserve Board has been
saying is, `Do not do as I do, do as I say,' because they say that
Government has to cut back. What do they do? They significantly
increase their spending in all areas. Take, for example, the
operating costs of the Federal Reserve System. Supervision and
regulation, from 1988 to 1994, increased 102 percent--102 percent.
An annual audit, certainly, is the least, we should get out of this. We
should know what is happening in the Federal Reserve System. A ray
of sunlight should begin shining on the Federal Reserve System. It
may not need to be part of our sunshine laws that were so popular, a
decade or two ago, but it needs a ray of sunshine shining on it. It
would instill greater public confidence in our banking system. It is
important.
I have talked only a little bit about the increased operating costs,
but the costs certainly have skyrocketed. And we are talking about
big money. From 1988 to 1994, the costs have gone up from $1.3
billion to $2 billion. That is a lot of money. Operating costs for
the Federal Reserve have grown at twice the rate of inflation. Fed
operating costs jumped 50 percent between 1988 and 1994.
FED Part 4
THE FEDERAL RESERVE BOARD (Senate - March 26, 1996)
Mr. President, I have behind me here a visual aid, and I think it is
pretty clear, if we look at what has happened with travel within the
Federal Reserve System, it has gone up 66 percent. We see what has
happened to the Federal Government. It has gone up 4 percent;
staffing levels of the Federal Government, minus 2 percent. We see
what has happened with the Federal Reserve System. It is incredible.
These costs are a story in and of themselves. From 1988 to 1994, the
Fed salary costs increased by 44 percent. Interestingly, also,
salaries of reserve bank presidents are significantly greater than
the Chairman. They vary. Somebody in San Francisco makes more than
somebody in St. Louis. It is interesting; there is no conformity as
to how much they make. They can kind of pay themselves, I guess,
what they want. And 120 top Fed officials earn more than the
Chairman of the Federal Reserve System, Alan Greenspan.
Within the Federal Reserve System, their benefits increased by 89
percent. Whereas in the rest of the Federal Government, we have been
reining in the costs, theirs have gone up almost 90 percent.
I might say, when we talk about the travel expenses increasing by 66
percent--but they travel in style. In 1994, the Fed's travel
expenditures were over $42 million. They are permitted to be
reimbursed, however they feel, they should be reimbursed: They can be
reimbursed per diem, they can be reimbursed actual costs. How would
this institution work if, in fact, every Member of Congress could be
reimbursed for travel costs, whatever they felt was appropriate?
There needs to be some uniformity. Because the policy varied from
bank to bank, these costs could easily be contained by a uniform,
more, taxpayer-friendly policy.
Senator Dorgan has talked about the double standard, and certainly
there is a double standard. When we also understand that 93.25
percent of all of the work that the Fed does has nothing to do with
monetary policy--only a little over 6.5 percent of what they do
relates to monetary policy--that is why I agree, wholeheartedly, with
my friend, the junior Senator from North Dakota, that in fact they
should be subject to the appropriation process. They should be.
I am a member of the Appropriations Committee. We spend most of our
time, trying to figure out a way to downsize, to cut budgets, to
eliminate programs. At the same time, the Fed is telling us that we
need to do this, their costs are spiraling. The rest of the
Government underwent necessary belt tightening. The Fed enjoyed a
smorgasbord of growth; they picked whatever they wanted. While the
Federal Government's overall staffing level declined by 2 percent,
the Fed's staffing level increased 6 percent, over that.
So we know there needs to be better internal management. The General
Accounting Office found this. I have gone around the State of
Nevada. People ask questions about the Fed. I have introduced
legislation in the past to have an annual audit of the Federal
Reserve System. It has gotten nowhere. It has gotten from being
introduced to the garbage can. But now there are facts to indicate
that what I have been talking about is absolutely necessary; that we
do need to have an annual report, we do need better management
control within the Fed.
We do not know how costs have gone up, in the last year and a half, or
so, but between 1988 and 1994, personnel compensation increased 54
percent, equipment and software expenditures increased 85 percent,
building expenditures increased 34 percent, and, as I already talked
about, travel expenditures increased by 66 percent. There is very
little in the Fed to keep these under control. The Fed is not
subject to the same cost reduction pressures that have affected both
public and private agencies.
The $3.7 billion slush fund that they have, that they keep around
for losses that may occur--we have not had any that occurred, in 79
years. I am on the Appropriations Committee. We are now in
conference, trying to work out the disputes we have. We badly need a
few more dollars to allow this omnibus bill to be signed, these five
appropriations bills. It could be done if we had the Fed's money
that is sitting there, gathering dust. We would solve the problem.
The Federal Government would be financed. We would not need any more
continuing resolutions.
FRB PART 5
THE FEDERAL RESERVE BOARD (Senate - March 26, 1996)
So we know, as the Senator from North Dakota has indicated, that we
need to do something legislatively. We first must have the $3.7
billion returned to the Treasury. We need to require an annual
audit, an independent audit. We need to institute uniform
procurement and contracting practices. We need to institute
executive branch policies relating to travel, benefits and security.
We certainly need to do that, at a minimum.
I think it would be well that we tied the salaries of Fed executives
to similarly situated Government personnel, and we need to subject
the Fed's nonmonetary policy operations to the appropriations
process. That is the least, we can do.
I think it, also, says a lot, when we realize that the Federal Reserve,
as described by my friend from North Dakota, has had this beautiful
home. We can just see the top of that home. We cannot see it all,
because there is a huge fence around it. We know we have
responsibilities for the structure, the landscaping in there, but we
cannot see it.
All we are asking is let us find out what is going on. It is
important. They conduct important functions of this Government, and
we should know more about what they do. We have to do away with the
shroud of secrecy. We have to peel back this cloak that they covered
themselves with since 1913. This rainy-day fund they have set up is
not a rainy-day fund, it is for a hurricane. They have this spending
free-for-all attitude. That has to stop. They have a blank check
mentality. I would like to know who is minding the shop, because
1913 accounting practices must be put to a stop.
Several Senators addressed the Chair.
The PRESIDING OFFICER. The Senator from North Dakota.
[Page: S2844]
Mr. DORGAN. Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator from North Dakota has 4 1/2
minutes remaining.
Mr. REID. And the Senator from Nevada?
The PRESIDING OFFICER. The Senator from Nevada has 2 1/2 .
Mr. DORGAN. Mr. President, let me use a couple of these minutes by
trying to put this in perspective.
There is the policy issue, with respect to the Federal Reserve Board,
how it behaves, what it does, how it impacts this country's economy.
Then, there is the issue that we raised with respect to the GAO
evaluation of the Fed. That is what we are discussing before the
Senate today.
This 200-page evaluation of the Federal Reserve Board and its
operations is the most significant look inside the Fed in 70 or 80
years. What it shows, as we have indicated, is they have stashed
away $3.7 billion for a surplus, despite the fact they have not had
a loss in 79 consecutive years. They are spending more and more,
during times, when others in the Federal Government are being told,
they ought to tighten their belts. Those issues are issues the
Congress ought to deal with. The Federal Reserve Board ought to be
subjected to an annual, independent audit. We ought to have
information and knowledge, about what is going on, behind that fence.
That is the reason we want to make sure our colleagues, the relevant
committees, and others will be able to evaluate the wealth of
information that exists in this draft GAO report.
Let me, finally, say a word about the policies of the Federal
Reserve Board itself, which are different, separate and apart from
the issues we have been discussing. I have very serious reservations
about the monetary policies, pursued by the Fed. As I have indicated,
the Federal Reserve Board has seemed to feel, now, for some long
while, that this country cannot have economic growth rates above 2.5
percent. If they fancied themselves as a set of human brake pads,
whose mission in life is to slow down the American economy, I say
they have succeeded. Give them a trophy.
That is not what this country needs. The global economy means wages
are falling, not rising. It means inflation is going down, not up.
And it means this country can have a higher rate of growth. There
are Democrats and Republicans, who believe very strongly that a 2.5
percent growth rate, for our economy, is anemic, and cannot provide the
kind of opportunity and expansion that we need in this country.
FRB Part 6
THE FEDERAL RESERVE BOARD (Senate - March 26, 1996)
I hope, in addition to the discussion we will have, about what the
Fed is doing, how it runs its operations, how it spends its
money--in addition to that, and we should have that discussion as a
result of this report, I hope we will also have a discussion about
the Fed's monetary policies, and whether they are appropriate to try to produce the kind of economic future that we want in this country. In my judgment, they
are not.
Two years ago, we saw the Federal Reserve Board increase interest
rates seven times. Why? Because they were heading off the fires of
inflation, they suggested. But inflation was not going up, inflation
was going down, and it continues to go down.
What they managed to do, with those interest rate increases, was to
slow down the American economy. That is not such a significant
talent. My Uncle Joe can slow down the American economy. Just bring
Uncle Joe to town, and I am sure he can figure out how to throw a
wrench in the crank case. It does not take a special talent to slow
down the economy.
The question is, how do we get the economy moving again, a vigorous
economy with new jobs and new opportunities for all Americans,
without raising the specter of additional inflation? That is the
task for all of us.
The Federal Reserve Board sees itself on a singular mission: Keep
economic growth somewhere in the range of 2.5 percent. That is not
enough growth for this country. No one ought to be satisfied with
that. It does not produce the jobs or the opportunities this country
needs.
Mr. President, I hope that even as we discuss the report about what
the Fed does and how it spends its money, we will alternatively
discuss Federal policies, especially in the area of monetary policy.
Mr. President, I yield the floor.
Mr. LOTT. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. LOTT. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.