Why Is Transparency Crucial at the Federal Reserve?
Aug. 2, 2012
Yes, furtive actions by the Federal Reserve show the need for a change to transparency.
Federal Reserve Chairman Ben Bernanke argues that transparency would lead to a “nightmare scenario” in the Fed’s monetary policies.
But many others, including me, feel the Federal Reserve has overtly overstepped its monetary authority – by actually undermining the authority of Congress on fiscal policy issues.
Despite opposition from the Federal Reserve, the U.S. House of Representatives is acting responsibly for the welfare of the nation.
By an overwhelming 327-98 margin, the House passed an audit bill, which sits in oblivion the U.S. Senate.
“I don’t know how anybody could be against transparency,” said bill sponsor Rep. Ron Paul (R-Texas).
He justifiably insisted American voters should be allowed to learn details about the Federal Reserve’s behavior – which includes massive bank-rescue deals and financial support of foreign central banks.
“They’re sick and tired of what happened in the bailout and where the wealthy got bailed out and the poor lost their jobs and they lost their homes,” said Rep. Paul.
You might recall the nonpartisan Government Accountability Office (GAO) audited the central bank in 2010 as required by an amendment introduced by Sen. Bernie Sanders (D-Vermont).
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sen. Sanders.
Mr. Paul’s bill directs the GAO to fully audit the Federal Reserve. It would also eliminate the transparency exemptions that protect the Federal Reserve and the Federal Open Market Committee.
However, published reports indicate Democrats in the U.S. Senate will ignore the need for transparency. That’s despite the wisdom of Sen. Sanders.
Several Democrats in the House and Senate echo the propaganda of Mr. Bernanke – they feebly argue transparency would emasculate the Federal Reserve and would damage the central’s bank’s image.
“That will politicize the making of such policy, and I think it’s a bad way to go,” said the House Minority Whip, Rep. Steny Hoyer (D-Maryland).
Really?
It’s past time that he and Democrats in the Senate, and Mr. Bernanke and members of the Federal Reserve stop acting like a ruling class. This is a democracy. Transparency is crucial.
From the Coach’s Corner, in a previous column, this business-portal pointed out the reasons why the Federal Reserve typifies what’s wrong with economy.
On another occasion, I listed the evidence to show why the Federal Reserve doesn’t understand small business.
“A politician is just like a pickpocket. It’s almost impossible to get one to reform.”
-Will Rogers
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Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Look for Significant New Fair-Value Accounting Standards
Aug. 4, 2010
As a company shareholder, you will see more transparency as the result of new fair-value accounting standards proposed by the Financial Accounting Standards Board (FASB). But the transparency means substantially more work to prepare financials, according to Daniel Figueredo, manager of San Francisco Bay Area accounting firm, Burr Pilger Mayer.
He was interviewed by Sue Ostrowski at the Smart Business Network.
“The new standards in the exposure draft will help converge the U.S. generally accepted accounting principles (GAAP) with international financial reporting standards (IFRS),” says Mr. Figueredo. “It’s a pretty robust draft with many new disclosure requirements. If it’s issued as is, it will be challenging for businesses.”
Mr. Figueredo says companies will be required to divulge how they arrive at conclusions when presenting fair-value financials based on changed assumptions.
“One of the most significant disclosure requirements that could affect businesses is the need to disclose a sensitivity analysis that attempts to measure the uncertainty in your fair value measurements categorized as level 3, which are the items that require the most management judgment to value,” Mr. Figueredo tells Ms. Ostrowski. “You will have to disclose the range of that price change, thus giving a reader a sense of the degree of possible swings to your balance sheet for other likely fair values that one could have arrived to.”
As an example, he cites banks with mortgage-backed securities.
“These instruments require a fair amount of judgment by management to value, and would likely be categorized as level 3,” he explains. “Factors considered in measuring the value of a mortgage-backed security could include pre-payment assumptions, default rates, loss severities and discount rates, to name a few.”
He says banks will have to establish the most-salient valuation assumptions. Then, they will have to ascertain other sums that were possible to consider in determining a different conjectural fair value.
Another significant change:
“As part of the new provisions, the exposure draft indicates that you should not consider blockage factors for level 2 or 3 fair value measurements,” he explains. “That essentially means that you should not take further discounts to fair value just because you own a large chunk of shares, such as with large investors like Warren Buffet’s Berkshire Hathaway or hedge funds.”
He explains the difference if a company should have to liquidate:
“…that sale will affect the price of the stock (typically downward),” he says. “But you could very easily sell smaller chunks of stock over longer periods of time. Blockage discounts are viewed as transaction costs, and the effects should be recognized when the decision to sell a block is carried out, rather than as period to period fair values.”
The article also explains more on how the changes will affect companies, what types of firms will be impacted and how they can prepare. For more details, here’s the link to the article:
From the Coach’s Corner, if you’re like a lot of companies in a financial turnaround situation, here’s a resource: Step-by-Step Solutions for a Company Turnaround.
Transparency and Why WA Unemployment Rate Jumps to 9.5 Percent
March 16, 2010
Universal criticism of the Washington State Legislature’s failure to be transparent is validated once again as the state’s unemployment rate continues to climb – now at 9.5 percent.
The increase stems from another 8,300 lost jobs, including 3,200 in construction and 2,100 in business services.
The timing couldn’t be more symbolic during this national Sunshine Week. The unemployment rate dovetails with the declining transparency at the Washington State Legislature. It’s in a special session to finalize the state budget with seemingly countless tax increases following years of over-spending.
If it weren’t for the watchdog efforts of people like Jason Mercier, Washingtonians would be in the dark regarding the chicanery of the Legislature. Lawmakers have refused to implement efficiencies at the expense of a suffering electorate and business community. They’ve passed ghost tax bills and made many decisions in private, but have not accomplished anything to improve the state’s economy. Mr. Mercier, who is the director of the Center for Government Reform for the Washington Policy Center, has issued countless updates from Olympia.
As a result of the secrecy in passing numerous unnecessary tax increases and other dubious legislation, newspapers across the state are clamoring for good, open government in Washington state.
Here’s a sample:
A bad example of legislative ‘transparency’, Olympian
“In the waning days of the regular legislative session, Senate Majority Leader Lisa Brown, a Democrat from Spokane, claimed the Legislature is much more transparent than it was when she entered the Legislature. Brown is wrong . . .”
Sunshine and Clouds in Olympia, Kitsap Sun
“The bad news is that public access to information and hearings about legislation has been … challenging. There’s been a flurry of ‘title-only’ bills introduced and set for hearings, sometimes on short notice, and with no timely public information on their content. Members of the public deserve better than that — and if they want to get it, they’d better say so this fall to those who seek to represent them in the Legislature.”
It’s National Sunshine Week, but state’s transparency forecast remains cloudy, Longview Daily News
“Shutting down the Sunshine Committee less than three years after it was formed is as difficult to justify as that legislative exemption from public disclosure. It proved too much for legislators to pull off in the light of day. The Sunshine Committee was taken off the bill’s termination list — less than a week ago. Sadly, that remains this legislative session’s single accomplishment on behalf of government transparency.“
State government clings to double standard, News Tribune
“Is it any wonder that city and county officials clamor for relief from open meetings and records laws when they see their counterparts in state government behave as they do? State officials profess a belief in public disclosure. They’re just not sure it always applies to them. Lawmakers in particular hold themselves apart from the state’s sunshine laws. They caucus in secret for any reason and insist that their correspondence is somehow constitutionally protected from public dissemination. They also apparently reserve the right to skip public process in the interests of expediency.”
Public input? Who cares?, Everett Herald
“With increasing audacity, key state legislators are taking control from the people and seizing it for themselves. Amid the difficult process of closing a $2.8 billion budget shortfall, they’ve skirted, waived or ignored the public’s right to know what they’re up to and comment on it.”
And there others we can cite.
Meantime, Mr. Mercier offers some excellent solutions for transparency and the Legislature’s practice of passing ghost tax bills.
“Add the preamble of the state’s public records act to Article 1,” he writes. This would help re-enforce this transparency intent for any wayward court.” (See the preamble about the voters’ sovereignty.)
“Add a new section to Article 2 which would require 72-hour public notification before any bill could receive a public hearing, he adds. “While the requirement currently exists in legislative rules, it is often waived.”
Amend Article 2, Section 19 to prohibit title only bills. No public hearing or vote should occur on a “ghost bill.”
Amend Article 2, Section 22 to prohibit votes on final passage until the final version of the bill to be approved has been publicly available for 24-hours.”
He points out it would not be a stretch for the Legislature to be transparent and give the voters adequate notice before passing bills that affect their livelihoods.
“Florida’s Constitution (Article 3, Section 19) requires a 72-hour public review period for appropriations bills before they can be voted on,” Mr. Mercier explains. “Hawaii’s Constitution (Article 3, Section 15) requires a 48-hour review period before any bill can be voted on for final passage.”
Is transparency too much to ask? No. So, why don’t we tell lawmakers how we feel? Otherwise, the unemployment rate and the economic climate will remain unnecessarily unacceptable. Not to mention the theft of Washingtonians’ economic and political freedoms.
From the Coach’s Corner, here’s a link from Enterprise Washington to find your legislators’ phone number and email address.