Fed Stonewalls Bloomberg News on Info Request -- Necessary Confidentiality or Cloak of Secrecy?

On November 7th, Bloomberg News filed a federal lawsuit claiming that the Federal Reserve Bank has refused to identify the banks that received almost $2 trillion in emergency loans as well as the assets it accepts as collateral. With virtually no oversight, the Fed is quietly lending far more than the $700 billion bailout package passed by Congress.

Bloomberg News attempted to get these questions answered by filing a Freedom of Information Act (FOIA) request with the Federal Reserve Bank. The Fed failed to formally respond to Bloomberg's request and a lawsuit was born.

The fact that the Fed won't disclose loan recipients or collateral is typical, as regulators enjoy broad discretion in denying such requests. Generally, it is more the exception than the rule that regulators release important information to the public under FOIA. With the economy in rehab, however, the American people deserve and should expect more transparency.

The lending policies of the Fed to banks have rarely been questioned, but its lending didn't go much beyond $1 million at any one time. Today, we need to know at least some of the detail behind the economic policy being implemented -- the numbers are reaching the trillions. This is especially so as the Fed loosened its collateral standards in September.

On the other side is that while Treasury and Congress debated the bailout, the Federal Reserve was getting dirty in the trenches, busy keeping the global economic life support switch on. So why ask questions? The Fed has essentially become the commercial paper market in the United States and now acts as the lender to financial institutions of first resort instead of the lender of last resort.

Is this a reasonable position for the Fed to be in and what explanation does Fed Chairman Ben Bernake owe taxpayers under the circumstances? The Treasury and the Federal Reserve both responded to Congressional demands for transparency in the Bailout with assurances that it was a critical part of Treasury's execution of the rescue plan. It is arguable that the same level of transparency should be expected from the Federal Reserve Bank in its lending programs and that taxpayers have a right to understand the quality of the collateral being used in these transactions.

Regulators undertake a balancing test when deciding what to release and what to keep confidential. There is always a market reason when regulators place information in the public domain. Too much transparency can lead to major market disruptions, so some level of confidentiality is necessary. However, the Bloomberg lawsuit suggests that this power is being be used by the Fed to avoid public scrutiny of the massive increase in its lending activity and questionable collateral standards.

The fear surrounding the failure to disclose collateral stems from the very thin lending market and trust in that market is a long way away. Disclosure of highly questionable collateral could significantly rock the stock market. However, the market is far from stable and with regular swings of more than 800 points, that concern may be overblown. If the collateral is that bad, shouldn't we be told?

Some say confidentiality is necessary to quell the fear and terror in the market and, thereby, allow it to stabilize. However, the veil of secrecy that has existed through this entire disaster has only served to engender more fear and terror in the market. We all have witnessed this fear paralyze and devastate the global economy, causing irreparable harm.

President Elect Obama has a huge task in front of him and it begins with restoring confidence in our economic leaders. The time for treating the American people like they should only obtain information on an "If I tell you, I'll have to kill you" basis is over.

The essence of the regulatory relationship with banks is trust. Now it is time for regulators to earn the trust of the American people and give us the information we are entitled to. Only then can the global economy begin to heal.

Comments

[joebhed]

WOW !
Talk about missing the story.
This transparency and confidentiality stuff is peepeedicking.

The story here should be about this one matter, that could possibly clear up a couple of other major misunderstandings.

Is the FED a part of the US government, or not?

It ISN'T ?????

That's news to us.
Cause they pretend they are.
And the Congress pretends, or possibly thinks, they are.
And so does everyone else.

Dear American People,

We are sorry to inform you that the Federal Reserve Banking System is a system of some 7,000 private banks, each of which is a private corporation with the power to create money and lend that money to the Federal Government or whomever they wish.

In making those loans to either the federal government or to THEIR OWN MEMBER BANKS OR HOLDING COMPANIES OR OTHER AMERICAN CORPORATIONS, they are NOT subject to the requirements of the American Freedom of Information Act disclosure guidelines because they are NOT PART OF THE FEDERAL GOVERNMENT !!

Try to find them in the USGOV phone book listings.

Now, THAT is a story !

Tell it !!

[StephenBarry]

The latter.

[PT6]

AMERICA needs FULL DISCLOSURE in a CRISIS!

Keeping your privacy at other times is probably a bad idea, but in FINANCIAL MELTDOWN it is not an option!

So come clean with what has been happening!

BUSH ERA SECRECY IS OVER!

[beaupritchard]

I once watched an ER episode where they must have brought the same guy back 6 times. He would start dying ... the ER doctor would rush in ... rub the paddles together ... say clear and then ... pfmmmt ... and the heart would beat beat beat. At some point I thought ... my god man ... let the poor bugger die.

That's what I'm thinking about the stock market about now. We all know the Fed is injecting capital into the market trying to make it seem like the market is rallying ... but nobodies buying it. In the game of confidence one must bait the sucker properly and I understand they are trying but only an idiot would bite on this.

Consumers(read other countries) are not confident that our market isn't going to take them down with it ... and rightfully so.

The sooner we start looking at the world in the face of the new realities the sooner we're going to get back on our feet. Break up these corporations so they can move back into communities with a smaller footprint. Government doesn't have to do anything ... let them fail. Stop this foolish chase for ever expanding markets. Ever expanding markets require ever expanding credit to fuel economies of scale. Credit requires confidence and nobody ... nobody ... has confidence in any ones elses currency.

[curiousasheck]

The Truth is the "Elites" are going to have to pay for their sins.

Perhaps it's time to reinvest in humanity?

(The other choice they have is obviously fortressing ones self from a whole continent full of bankrupt, re-poed, and idle former WalMart shoppers, many of them with half of their skin tattooed and many of that bunch all revved up to "roll heavy and gun up" against the folks who screwed them.)

Kind of like a reverse Winter of our Discontent

[beaupritchard]

The Fed can tell congress no ... is this true ...

[MuchMadness]

Oh, Canada, please invade us. We want to be part of the True North, brave and free. We are sorry about Bush, we really are. Please help us! And bring some maple syrup and universal health care.

[Henry]

It can be argued that the government should keep confidential information close to the chest, however, when the government is writing bailout checks and this is a democracy, transparency is required. The governments preference, right or left, is propaganda, you know in the Sovyet style...
Here is a link to the balance sheet of the Fed. You can see their assets have grown over the past year by greater than $1 trillion. Is Ben getting the right "bang" for his bucks and what, prey tell is he using all this money for in a free market economy??? You know the boys are always up to some shenanigans and Ben and Hank are part of the boys.

http://www.federalreserve.gov/releases/h41/Current/

[DuganS1]

If it's made public who the problem banks/financial entities are there will be runs on those institutions, by the short-sellers, depositors, bond holders, etc. I think it would be a terrible idea to make some of this public.

[curiousasheck]

"President Elect Obama has a huge task in front of him and it begins with restoring confidence in our economic leaders."

Oh that's comforting. Restoring confidence in our economic leaders?

[Sagantech]

Egregious conflict of interest here!!

[Thermodynamics]

Am I wrong? I am just a reader but I see these problems with Paulson's governance:

1. The bailout is approaching $3.5T. US mortgages total about $10T. Less than $2T worth are at risk. We could have just bought all those properties for less money. Instead, we are buying at the top of a leveraged pyramid.

For comparison purposes, the total value of US residential real estate is about $20T and the US GDP is about $14T.

2. Paulson has several conflicts of interest.

He owns something like $700M in Goldman Sachs.

The bailout money provided to AIG passed right through to Goldman because Goldman is the insurer (counterparty) of that bad paper.

Because Paulson, as a public servant, put his assets in a trust, he can sell them without paying capital gains tax, thanks to an obscure loophole. This could save him $200M.

[Sagantech]

No you are correct! Egregious conflict of interest here!