Will The Fed Be Subject To A Full Audit?
Welcome to the Real Estate Espresso podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.
On today’s show, we’re taking a look at the banking system in the United States. One of the things I like to do on this show is to report on things you could before reading or hearing about them in the mainstream media. The sentiment in Washington has markedly shifted towards fiscal responsibility, making eliminating waste a key priority.
The last several years have conditioned people to assume the banking system can make any number of mistakes, with depositors always getting their money back regardless of whether their accounts were deposit insured or not. Think about the period following 2008, when the TARP program pumped around $700 billion in cash to bail out banks, insurance companies, and automotive manufacturers. These funds were eventually paid back to the U.S. taxpayer with interest by 2014, which retrospectively means the bailout didn’t cost the taxpayer anything.
We’re now witnessing the failure of Silicon Valley Bank, Signature Bank, and First Republic. The government stepped in again, providing a limited bailout of the banks. We’re going to focus particularly on Silicon Valley Bank, although all three banks received similar treatment. Did the US government actually bail out Silicon Valley Bank? Well, the answer is no, not traditionally. They didn’t utilize taxpayer money to save the bank itself, but they did take extraordinary measures to protect depositors, which wasn’t sustainable or scalable.
Silicon Valley Bank collapsed on March 10th, 2023, triggered by a bank run on liquidity issues. The bank regulator took over to manage its failure. The bank wasn’t saved, and its shareholders lost their investments. The bank was closed, and regulators took over. They relied on the Federal Deposit Insurance Corporation and the Treasury Department to assure all depositors, both insured and uninsured, would get full access to their money. Normally, FDIC only guarantees deposits up to $250,000 per entity in a single bank, but in this case, deposits exceeding that limit were also protected.
Now we have the Department of Government Efficiency examining the US Treasury Department as the clearinghouse for government transactions. But the US Federal Reserve has never been subjected to a complete audit in its 113-year history. What if the Department of Government Efficiency thoroughly reviewed the Fed’s books? Would they find suspect transactions?
Last week, inquiring Federal Reserve Chairman Jerome Powell about providing access to the Fed’s books, he deftly avoided answering and seemed visibly uncomfortable with the question. It’s plausible the Federal Reserve might provide an underhand route to access funds improperly.
The Federal Reserve already falls under scrutiny from the Government Accountability Office and also publishes its balance sheet every week. Since Dodd-Frank Act, the Fed makes regular quarterly presentations to Congress and the Senate Finance Committee. These reports, however, are superficial at their best, summarizing information per category without any detailed content.
Entrepreneur Elon Musk has publicly called for comprehensive auditing of the Federal Reserve. Musk’s proposal focuses on scrutinizing the Fed’s monetary policy decisions and most importantly, their foreign transactions. Senator Rand Paul also introduced the Federal Reserve Transparency Act of 2024, aiming to compel a full audit of the Fed by the Government Accountability Office.
So will the Fed be liable to additional scrutiny? If so, could this translate to the banking sector? These constitute reasonable questions. The most pressing issue being; how will this transition from the current system to a potentially new one be managed? Will property transactions be affected during this transitional period? If you knew that a period of uncertainty lies ahead, what would you do now?
We’ve witnessed rapid changes with the Trump administration, so it’s necessary to stay one step ahead of the game. Have a great rest of your day. Make some great things happen. We’ll talk to you again tomorrow!
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