Fed Audit Plays to the Middle

The need for an audit of the Fed's activity during the financial crisis is clear. Having conducted more than $2 trillion worth of transactions, including cheap loans to a wide group of banks, the government really doesn't need any particular catalyst for an audit. It just needs to be done.

The need for the audit was so clear that it brought the Senate together in a 96-0 vote. During an era of bipartisan and ideological battle over a range of issues from health care reform to financial regulatory reform, the unanimous vote is striking. The audit was attached to the banking bill in an amendment sponsored by Senator Bernie Sanders of Vermont, an independent and the only self-described socialist in the Senate.

The amendment could have gone a lot further, though. And it should have. A more powerful version would have required annual audits of the central bank. That might have been perceived as a threat to the Fed's traditional political and financial independence. But the Fed is now operating well beyond its traditional scope, and it will gather more power if banking reform is adopted. And given the nature of the Fed's bailout to AIG, which allowed Goldman Sachs to recoup its obligations from the insurer at 100 cents on the dollar, there is good reason indeed for more transparency throughout the institution.