The GAO Audit of the Fed’s AIG Bailout: Toward Increased Transparency?

Today’s letter from Ben Bernanke to the GAO stating that the Fed would “welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG” is a step in the right direction. Importantly, the letter also indicates that the Fed “will make available to the GAO all records and personnel necessary to conduct the review.”

A key set of records, which should be made available publicly, are the minutes of the Federal Reserve Board meeting, or meetings, where the decision to bailout AIG was made, along with the Board staff analysis relating to that decision. A full review would also require release of information (perhaps minutes from other Board meetings) where the decision not to extend credit for Lehman was made–a decision made just two days before. According to press accounts, and to Sorkin’s book Too Big Too Fail, the AIG bailout was recommended to the Board by Timothy Geithner, who was then president of the New York Fed, but who was not, of course, a member of the Board. There is now much debate and conflicting testimony about the nature and even the existence of the systemic risk which is currently cited as a factor in the Board’s decision.

In keeping with the spirit of letter sent today, there is no reason why the Board should not regularly release detailed minutes of such crucial meetings just as the Federal Open Market Committee does. Currently, the only minutes available for those Board meetings that involved the “unusual and exigent circumstances” clause were for the March 14, 2008 and March 16, 2008 meetings, which related to Bear Stearns. The Board released these on June 27, 2008, three months after the meetings took place, but it has not released minutes from the Board meeting on AIG or related meetings of more than a year ago.

There is a stark contrast between the relatively high degree of transparency of FOMC decisions and the lack of transparency of Board decisions. To see this, compare the most recent FOMC minutes with the Board minutes of March 2008 cited here, or with no minutes at all. Increasing the transparency of the Board meetings to the level of the FOMC meetings would improve public discourse on these important decisions.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

Be the first to comment

Leave a Reply

Your email address will not be published.