Oh STFU and Let them Audit the Fed if It'll Make Them Happy

Pic credit: Ben Garrison

The Fed has a cheerleader and (s)he comes from deep within the anonymity of the Internet. I found ktm1 or (s)he found me on "You Want to Audit the Fed. But Why?" and after realizing Mr(s) ktm1 appeared in my lap from behind a proxy, I just had to dig a little deeper.

Whose IP are you hiding, ktm1? Come on out, now, I don't bite.

Anyway, the post in question is here and the comment in question went something like this:

I'm arriving late to the party, but the Financial Accounting Manual that you spend so much electronic ink hypothesising about is easily found online with a google search:


Perhaps you would like to say what is wrong with the accounting procedures in the manual instead of invoking a master conspiracy?

Now maybe I'm being cocky here but if we're playing a game of who has the largest Internet balls, fringe financial blogger beats Reddit any day. Regardless, the Fed's fanboy (girl) seems to have a penchant for picking fights over the Fed, according to his (her) Reddit history. Who would defend those people?

There is no conspiracy. The facts are clear as day - the Fed is audited, I understand that, who said I was a proponent of HR 1207, even before it was gutted? I simply find it ridiculous that any auditor could take the Fed's own accounting manual and come out of their statements with anything useful, had our friend ktm1 read the post in its entirely, maybe that would be clearer.

But ktm1 isn't content with that. Are you getting paid to skeeze around the Internet behind a hidden IP arguing over what the Fed does or doesn't do? I certainly hope so, otherwise I worry for your mental well-being, whomever you are.

Check this out, from Reddit:

Look, here is the Fed's balance sheet. In the last year it has gone up by $1.17 trillion.

In the last year the Fed has expanded its balance sheet by $447 billion in securities, a mix of treasuries and agency debt (GSEs); by $303.6 billion its term auction credit; and by $164.7 billion its commercial paper facillity.

Is it different from normal? Yes - but only because they have been buying more types of securities than only short-term treasuries, not because it is somehow a secret and a political trick what types of securities are bought and sold or who gets to sell them to the Fed.

Look for example at the Commercial Paper Funding Facility. You want to participate in the auction? Go for it, here is the registration form - it should take you two days to be in the system. Concerned that only certain securities of certain companies are bought? Here is the FAQ with the criteria for collateral, all 3 month commercial paper of grade A-1/P-1/F1 is eligible. These are not secrets nor do they exclude companies.

Who are they buying securities from (or loaning money against securities)? Let's check out the Securities Lending page at the NY Fed. We see that the primary dealers as listed above all may participate in the auction. If this is not well known, it is for lack of googling rather than for purposes of deep secrecy.

Liquidity swaps with foreign Central banks account for another $213.3 billion. And of course, we know which countries we have these swaps with.

Did and do certain banks get special credit lines? Yes - but we already know that, and we know which ones: Bear Stearns, AIG, Citigroup, and BoA. Is it good thing? No. Is it a secret? No.

Do other banks have access to Fed credit lines? Yes, through the term auction facility. Which banks can participate in the auction? Any that have CAMEL rating 1,2 or 3. We don't know which specific banks have received credit through TAF - and you can argue whether or not endangering a run on specific institutions is worth the immediate public release of information - but we do know that it is auction determined and we can draw up a big list of banks that participate.

It is entirely possible to disagree with the intent of the programs; but the suggestion that it is a special graft mechanism, a scheme to secretly get money to specific banks instead of whichever bank out of the many eligible wins the auction, seems pretty far-fetched.

That's the kind of validation that only a Fed goon could come up with. Actually, come to think of it, that's not even Fedspeak. As many of you already know, Jr Deputy Accountant has gone "deep into the heart of darkness" and I'm happy to report they don't talk like that on the other side of enemy lines, in fact they're downright cuddly. So what gives?

No one is saying the Fed is favoring certain banks (can you deny that JP Morgan isn't the Fed? Do let me know), we are saying that they are artificially propping up markets, engaged in activities that are not authorized by their Congressional mandate and do not feel a need to be accountable for these actions. Can you deny that Fed vice chair Kohn sat right there on the Hill and said "No" when asked to reveal who the Fed had lent all of this money to? LENT. He did not say "well, all we did was buy securities and that's none of your business," he said he refused to say who they gave the money to.

Or did you forget that bit, ktm1?

Skeptical CPA said it on my July 9th Incredulous as Ever, Fed Vice Chair Kohn Insists His Boys Rock at Supervisory, Regulatory Job:

"Independent and transparent", that's the rub. The Fed can only influence markets if it misleads them. If the Fed acted as expected, it's actions would have been "discounted" into the current price structure and could not affect the markets.

Go polish your argument and come back when you've got something better. I'll be waiting. I'll even throw in a free tin foil hat for your time, now come get some, baby. And I hope you've got experience with jumping a buzz saw.

And if you're really in the mood for more Audit the Fed, you can see me going off previously here: Fed Economic Rocket Scientists on Auditing the Fed, Liquidity Crises, They’re Comin for Dat Ass, Bernanke: Defining “Federal Reserve Accountability”, Auditing the Fed: Redux, and Auditing the Fed? Good Luck with That.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.