Fed Scrambles to Ram Through "Weimar II;" Opposition Begins

May 13, 2010 (LPAC)—Fed Chairman Ben Bernanke has gone into overdrive, to try to convince the U.S. Congress not to oppose the decisions of the Obama Administration to provide untold sums of U.S. dollars, to bail out the European banks. Bernanke held a behind-closed-doors session with Senators on Tuesday the 11th, during which, according to Senator Richard Shelby, he warned that the "European" problem" had "ramifications probably on a lot of our banks and banking system if there was no intervention."

While forced to admit that the opening of the Fed swap lines for Europe, which the Fed offered Sunday night, will increase the Fed's balance sheet, the Obama Administration is at pains to convey that there will be "limited," if any risk. Administration spokesmen were quoted on CNBC May 11, saying that the ECB would be guaranteeing the (unlimited) swaps, while the monies being provided as part of the IMF package ($54 billion) would be paid back because "no one ever defaults on the IMF." This formulation provoked quite some skepticism by CNBC commentator Kudlow, as indeed it should.

On Capitol Hill, The Hill reports that Congressman Mike Pence is preparing legislation to try to block Treasury Secretary Geithner from approving the IMF package. Sen. David Vitter, in his presentation of the original Ron Paul amendment for auditing the Fed on May 11, cited the Fed swap agreements as one reason that the Congress should have the capability of auditing Fed actions in the future, not just for the period of the 2007-now crisis period. According to the Financial Times, Vitter said, "Although Chairman Bernanke assured Congress in recent testimony that 'we have no plans to be involved in any foreign bail-out...,' very recently in the last few days the Fed has announced the opening of very significant facilities to central banks in Europe."

In moves described as attempts to placate anti-Fed sentiment, the Fed pledged to publish information on the swap deals on its website immediately. Today there were already three: with the Swiss Central Bank, the European Central Bank, and the Bank of England. It's not going to work....