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Matt Stoller: How the Fed fought dirty & Grayson fought back

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There's a fascinating story by Matt Stoller writing at Naked Capitalism about the Fed, Alan Grayson, and how the corrupt system works as seen from the inside.

After an introduction with some thoughts about the Fed and its power — and also the nature of American money — Stoller talks about his experience with the Fed and Congressman Alan Grayson. (Stoller served as Grayson's Senior Policy Advisor when Grayson was in the House and was personally involved in Grayson's audit-the-Fed battles.)

The story itself starts here (my emphasis):

[I]t is important to put something on the record about the Federal Reserve’s politics. From 2009 onward, the Fed fought bitterly and fought dirty to prevent any disclosure whatsoever. I’ve never told this story before, about the Fed’s nasty and dishonorable lobbying campaign against a Fed audit. ...
Stoller then backgrounds the tale with instances of how amazingly deferential everyone in Congress is to the Fed, from staffers to Barney Frank. I'll skip that section, but please do read. It explains the way the Fed got action in the 2008 crisis.

After that discussion, enter Alan Grayson and his tale. Sweet — here's a taste, the first few paragraphs of the meat of this great post:
The story of how I became involved with the Fed audit fight starts with a semi-random event. I connected with Grayson in the fall of 2008, when a Democratic landslide seemed imminent; he hired me to work on policy. My title was “Senior Policy Advisor”, a Lake Wobegon-ish line used on the Hill to designate catch-all advisor (there are no “Junior Policy Advisor” titles). Soon after, in the beginning of the session, he got put on the Financial Services Committee, because that’s where Democratic leadership put a lot of freshmen in swing districts. We had no other policy staffers yet, which caused some chatter of the “did you hear the only person they have working on policy is a BLOGGER?!?!” variety. Still, despite my handicap of having written stuff on the internet, I ended up covering the Financial Services Committee in my issue portfolio.

Our specific fight with the Fed started in January, 2009, when I put a stack of blog posts and Bloomberg articles on the trillion dollar expansion of the Fed’s balance sheet in front of Grayson to prep him for a hearing with Fed Vice Chair Don Kohn. It was Grayson’s second Congressional hearing. And what I didn’t know, and what Kohn was about to find out, was that Grayson was basically the best cross-examiner in Congress and fluent in central banking parlance and international investing. Members get just five minutes to ask questions, and when the witnesses are important, they can’t ask for more time. As I noted before, Barney was especially aggressive about preventing members from getting more time, especially when the witnesses were from the Fed and the questions were probing.

But Grayson made his time count. Kohn never saw it coming – Grayson asked him which banks received the $1.2 trillion in spending from the Fed. The scene was electric, and fortunately, it’s preserved on Youtube. Grayson would ask a question, and when Kohn didn’t answer, simply repeat the question. Who got the money? Did Credit Suisse get the money? Citigroup? Etc. The droning contrast of Kohn’s evasive answers, combined with Grayson’s clear questions, was an entertaining metaphor for the power of a cold and enormous bureaucracy up against a scrappy iconoclast. As Kohn got tripped up, and confused spending and lending, bored observers in the committee room woke up and note. One experienced journalist told me that Kohn is a master of these hearings, and it was shocking to see him embarrassed by a random freshman legislator The video went viral, because Grayson was the only member who had theatrically focused on what Mark Pittman of Bloomberg reported, a remarkable and unprecedented expansion of the Fed’s balance sheet. And Grayson was fun about it. After the hearing, banks began calling our office, afraid that we knew something about their relationship with the Fed. We didn’t, which they quickly realized. But it turns out they had good reason to worry, since they were in fact borrowing trillions.
This is just the beginning; please do read the rest of this story. Don't miss the part about the pro-Fed clause that couldn't be killed; it re-emerges phoenix-like from its many ashes, time and time again.

This is a great insider account with lots of take-aways.

Here are mine. First, note what it took to get this done:

■ Both an inside game and an outside game (neither alone would have worked)
■ An extraordinary individual — Grayson — one of the few Dems uncorrupted enough to actually use his power
■ Tremendous effort, persistence, concentration

And still, the victory was a small one, though real.

Next, notice what they were working against:

■ Institutions geared to automatically favor the Elite
■ Individuals willing to use those institutions
■ Enormous deference by those in "power" (elected types and their staffs) to those in Power (here, the banker-owned Federal Reserve)

So my first take-away is, third parties don't work, since they are "outside games" only. By the time the "outside" movement gets strong enough to elect a 3rd party candidate, their goals aren't usually electoral — that many angry people start carrying pitchforks.

I'll have more on this. But all in all, it sure looks like, if you really Hope for Change, Obama has to be primaried.

The trick is to engineer that.


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