In monetary policy—controlling the supply of money—the Fed is constrained by reasonably well-understood policy levers that have a macro impact, and its decisions are rather evident in short order. Now, in contrast, the Fed is engaging in fiscal policy—spending money—and in fact has become the single largest fiscal actor in the U.S. economy, dispensing hundreds of billions of dollars to private parties. In doing so, the Fed is picking winners and losers. Why Goldman but not Lehman? Why guarantee the debt of some companies but not others?It looks like the Fed will escape relatively unscathed though. Legislation wending its way through Congress (see here) appears to have been toned down, to the point where the Fed will see some auditing only of its market activities during the financial crisis.
Now, the Spitzer quote above is quite confused, but in an interesting way. First, by definition, the Fed is not engaged in fiscal policy. All of the Fed's recent activities are permitted under the Federal Reserve Act, which prescribes what monetary policy is (though we could debate whether the Act gives the Fed too much power). Second, the Fed is not "dispensing money," it is acquiring assets, and so far making a profit in doing so. Most importantly, Spitzer seems to think that the Fed is typically not up to much - it moves the money supply around, announces fed funds rate targets, publishes its statements and minutes, and everything is fine. Well, not really. Central bankers are practiced at laying low, keeping secrets, and saying as little as possible in public. First, the Fed typically moves its fed funds rate target up or down by 1/4% at any FOMC meeting, and they do that for a reason. This is part of laying low. Monetary policy could be having very big effects - changing the level of GDP, reallocating credit across sectors, etc. But the average Congressperson, Joe Schmoe, or Jane Doe, is not going to notice this much in real time. Second, we all know how central bankers (Alan Greenspan being the classic example) can drone on for hours, sound authoritative and confident, say absolutely nothing of importance, and get away with it. Third, while the Fed publishes the minutes of FOMC meetings (see here), it does this with a lag, and in a very vague manner. We don't know the actual words, and who said what until five years later. By then, this information has only historical interest, and it is hard to hold anyone accountable. Having this information on a timely basis (i.e. immediately) is of course key to understanding exactly what the Fed is up to.
Now, in intervening in such a massive way, the Fed is being called to account, and rightly so. The Fed is enormously powerful, and able to reallocate resources in important ways, even in normal times. If and when the Fed gets its balance sheet back to "normal," maybe we should be thinking seriously about more transparency in central banking as well as in private banking.