Frank Asks Bernanke to Probe Fed on Watergate, Iraq

By Scott Lanman
Bloomberg
Mar. 04, 2010

March 3 (Bloomberg) -- House Financial Services Committee Chairman Barney Frank asked Federal Reserve Chairman Ben S. Bernanke to investigate allegations of Fed involvement in the Watergate scandal and Iraqi weapons purchases in the 1970s and 1980s.

Frank, 69, said the Fed must address the charges because “continued concern about political interference” with the Fed and “allegations about a lack of transparency.” Bernanke and other Fed officials are trying to fend off a measure offered by Paul, which passed the House in December, that would open the Fed to audits of interest-rate decisions.

“These specific allegations you’ve made I think are absolutely bizarre, and I have absolutely no knowledge of anything remotely like what you just described,” Bernanke told Paul, a Texas Republican who wrote the 2009 book “End the Fed,” during last week’s hearing.

Bernanke, 56, joined the Fed in 2002 as a governor and was appointed chairman in 2006. The Senate confirmed him for a second four-year term in January by a 70-30 vote.

According to a 2008 book, “Deception and Abuse at the Fed,” by University of Texas Professor Robert D. Auerbach, then-Fed Chairman Arthur Burns tried to block lawmakers’ probes into the source of $6,300 found on the burglars of the Democratic National Committee’s offices in Washington’s Watergate complex in 1972. Burns, who served as Fed chief from 1970 to 1978, died in 1987.

Block Probe

Auerbach worked for Henry Gonzalez, a former chairman of the House committee who died in 2000 and investigated the sale of U.S. arms to Iraq in the 1980s, before the Gulf War. Gonzalez said the Fed and other agencies initially tried to block his probe, according to a 1992 New York Times article.

Fed bank examiners in Atlanta failed to note $5.5 billion being funneled to Iraq from a local branch of an Italian bank, Auerbach, a critic of the central bank and former congressional economist, said in his book.

“The Federal Reserve’s ability to manage monetary policy in an effective manner depends, in large part, on its reputation for independence and integrity,” Frank, a Massachusetts Democrat, said in the letter. “A complete investigation of these charges is necessary to maintain both.”

--With assistance from Robert Schmidt in Washington. Editors: James Tyson, Brendan Murray