It’s no secret that Republican presidential candidate Ron Paul is no fan of the Federal Reserve. Paul has made numerous allegations against the U.S. central banking system, and has even called to abolish it. But a recent report determines that at least two of his charges reveal little cause for concern.
In 2010, before a House Committee on Financial Services, Rep. Paul (R-Texas) raised two long-standing grievances involving the U.S. Federal Reserve Bank. In his testimony, Paul referred to reports that the Fed not only helped supply cash used in the Watergate scandal, but also facilitated a $5.5 billion loan to Iraq to buy U.S. weapons.
“When investigators in those years tried to find out, they were always stonewalled and we couldn’t get the information,” said Paul. “Why can’t we open the books up 10 years back and find out the truth of these matters?”
Paul’s allegations resulted in a 16-month investigation. But in a report released this week, the U.S. Inspector General (IG) couldn’t seem to find the corrupt leadership the congressman was pointing to.
The 30-page report found no evidence of wrongdoing with the Federal Reserve related either to Watergate or Iraq weapons purchases during the 1980s. According to the IG, there were no hidden transfers of resources, no evidence of political interference, and no abuse of authority with Fed officials in either case.
Both cases had already undergone intensive investigations in their day, and according to IG Mark Bialek, the report basically confirmed past statements made by Federal Reserve officials in relation to these incidents.
A key clarification in the IG’s Watergate investigation involved a totally unrelated theft that had occurred just a few months before. In 1972, the FBI found thousands of dollars in freshly printed, sequentially numbered $100 bills at the Watergate Hotel. Investigators traced some of the bills back to a Federal Reserve Bank in Philadelphia where, just prior to the Watergate bust, another case involving employees at the same Fed bank stole $1.4 million.
The IG says that not only was the case well-publicized, but the bills the bank employees stole were old and worn—money that the Fed had deemed was unfit for further circulation. Subsequently, the report found no evidence connecting the theft to Watergate.
As far as “stonewalling,” the report admits that Fed officials decided not to provide some details requested by congressional members, but says that statements were consistent with the U.S. attorney’s office advice not to disclose information that might impede the Watergate investigation and damage subsequent prosecution.
However, the IG stated that Fed responses to congressional inquiries were neither inaccurate nor evasive. The report suggests that suspicions stem from statements taken out of context, and provides a chronology of Fed board correspondence to help iron out any confusion.
Conclusions were similar with regard to the Iraq inquiry. The IG found no evidence of the Fed engaging in unusual investigation procedures, much less supplying a $5.5 billion loan to Saddam Hussein. As the investigative task force had determined nearly 20 years ago, the unauthorized credit activity and falsified documentation uncovered in the case were directly and solely linked to employees at an Atlanta branch of a foreign-based bank.
After reading a draft of the report, attorney Scott Alvarez of the Fed’s general counsel said he was grateful for the IG’s detailed and thorough investigation. But the analysis is not likely to impress Rep. Paul. When you trace, as he says, every U.S. economic downturn to Fed policy, it still leaves a lot more room left for investigation.