After two weeks of public wrangling between Congress against the Treasury and the Fed, we thought we knew all there was to know about the cost of the bailout. We were wrong. Old habits die hard. The same penchant for secrecy and partial disclosure that pervaded the last eight years of foreign policy, energy policy and domestic intelligence gathering is now slowly emerging in the bailout.
We are just now learning that the Fed has provided more than 2 trillion dollars of special lending, against poor collateral, to banks, insurers, and investment banks. When asked to identify the banks that received these loans, the Fed cites its longstanding policy to keep the discount and special facility loans private, lest the information spark a run on the neediest banks receiving this government help. At the Treasury, the criteria for deciding which banks will be given money from the initial allocation of the Troubled Asset Relief Fund are closely guarded secrets.
The Treasury Department controls tax policy. While the attention of the entire Congress, indeed the entire nation was focused on the bailout, the Treasury Department issued a notice that effectively repealed a section of the tax code that prevented banks from taking advantage of the tax losses of banks that they acquired to wipeout their own tax liabilities. The notice was so controversial that reporters have been unable to find anyone willing to say who wrote this new notice. Experts predict that this stealth notice will cost as much as 140 billion dollars of tax revenue.
These are very expensive secrets. However, it turns out that the biggest secret of all is that free-market, deregulators who have balked at consumer protection and foreclosure workouts for homeowners, do, after all, believe deeply in robust and aggressive government intervention in markets. It is no secret that this belief in the benefits of government intervention is limited to actions that will shore up the fortunes of the top 1% of the personal income scale, and the biggest banks. These institutions receive explicit bailout money through the front door and extremely valuable tax policy changes through the back door.
These secrets with a big price tag can hurt the ambitious promises and plans of brand new administration.