It started more than a quarter-century ago as just another far-out idea from decidedly outside-the-mainstream politician Rep. Ron Paul -- allow detailed congressional audits of some of the most sensitive activities of the Federal Reserve.
For years, his proposal was as unlikely to become law as other longtime quests of the strongly libertarian Texas Republican, such as returning the nation to the gold standard and abolishing the Internal Revenue Service.
But Paul's idea to hold the Fed more accountable has gained traction throughout the financial crisis. On Friday, it moved a clear step closer to reality when the Democratic chairman of the House Financial Services Committee said he would push it forward.
The bill got exposure when Paul ran for the 2008 Republican presidential nomination. Then the Fed became a huge, controversial player in battling the financial crisis, invoking emergency powers to use hundreds of billions of dollars to help engineer the sale of Bear Stearns Cos. and bail out American International Group Inc.
Paul's legislation now has become a rallying point for Republicans and Democrats angry over the bailouts and the Fed's increased and mysterious role in the economy. More than two-thirds of the members of the House of Representatives have signed on as co-sponsors of Paul's "audit the Fed" bill.
The Fed strongly opposes the legislation, saying it would subject its decisions to political influence that could shake market confidence.
The support of Rep. Barney Frank (D-Mass.) gives a major boost to Paul's 26-year push to allow the Government Accountability Office to conduct detailed audits of some of the Fed's crucial activities, such as setting monetary policy and short-term lending to banks through its discount window.
Both actions are couched in various amounts of secrecy: minutes of monetary policy meetings aren't publicly released for three weeks, transcripts are shielded for five years, and banks that borrow through the discount window are never revealed to avoid the perception that they might be in trouble. Federal Reserve officials oppose the legislation, but Frank said he was committed to including it as part of a package of bills to revamp the financial regulatory system.
"We are serious about some legislation in this regard," Frank said during a hearing he held on the bill -- the first since Paul originally introduced it in 1983. Democrats and Republicans expressed strong support, reflecting anti-Fed sentiment in Congress, a hurdle to President Obama's plan to increase the Fed's power as part of his financial regulation overhaul.
"Nobody in my district thinks the Fed has done such a good job of running the economy that we should continue to cloak them in secrecy to protect them from second-guessing," said Rep. Brad Sherman (D-Sherman Oaks).
Paul said the Fed's increased profile during the financial crisis has led to questions about its complex operations and anger over its ballooning balance sheet, which has taxpayers on the hook for trillions of dollars in lending related to the financial crisis.
Americans "are disgusted and they put pressure on Congress. . . . The people said that it's time you guys woke up and started the proper oversight," Paul said after the hearing.
The Obama administration wants to give the Fed authority to supervise and regulate large institutions whose failure would pose a risk to the economy. The proposal adds to worries about the limited information on Fed activities. Frank reflected that, saying he also wanted to rein in the Fed's emergency lending powers.
But he expressed concerns that information from GAO audits could disrupt financial markets, saying he would seek to mandate a delay in the release of some information.
"No one should be able to do business with the federal government in secret forever. But we do recognize that if it's instantly available, there can be a market impact that would not be a good idea," Frank said. Paul said a wait of three to six months seemed reasonable.
Scott G. Alvarez, the Fed's general counsel, said that when Congress allowed GAO audits of the Fed in 1978, it specifically exempted certain "highly sensitive areas," including monetary policy deliberations and actions, discount window operations, and transactions with foreign central banks and governments. Detailed information about those activities "would cause the markets and the public to lose confidence in the independence and judgment of the Federal Reserve," Alvarez told the committee.
He noted that a full, independent audit of the Fed's financial operations is conducted every year and that Chairman Ben S. Bernanke has taken steps to increase the amount of information the central bank releases.
Alvarez said GAO audits were not like traditional accounting audits. The congressional watchdog has power to question Fed officials and to make policy judgments about the central bank's operations.
"The concern that we have is that monetary policy, to be effective . . ., has to be as free as possible from political considerations," Alvarez said.
But Paul questioned what the Fed was hiding.
"Fifteen or 20 years ago, nobody really cared," he said, noting that most people knew the Fed only for its interest-rate decisions. "Now they're wondering whether it isn't the Fed that stirred things up."