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Federal Reserve Fighting Transparency

Posted by Larry Doyle on August 27, 2009 12:54 PM |

Given the enormous costs and burdens currently being borne by the American taxpayer during this financial crisis, are taxpayers supposed to blindly trust the Federal Reserve? Kudos to Bloomberg News for doggedly pursuing increased transparency on behalf of the Fed. Bloomberg reports, Federal Reserve Says Disclosing Loans Will Hurt Banks:

The Federal Reserve argued yesterday that identifying the financial institutions that benefited from its emergency loans would harm the companies and render the central bank’s planned appeal of a court ruling moot.

The Fed’s board of governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs must be made public by Aug. 31. The central bank wants Preska to stay her order until the U.S. Court of Appeals in New York can hear the case.

“The immediate release of these documents will destroy the board’s claims of exemption and right of appellate review,” the motion said. “The institutions whose names and information would be disclosed will also suffer irreparable harm.”

The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.

The central bank didn’t say when it would file its appeal.

Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records.

“We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”

The Standard

The Fed’s lawyer went on to say that she did not know what records would fall under a “delegated function,” which would be a task assigned to the New York Fed.

Preska interrupted Wheatley, saying that “Ms. Wheatley, I held that’s not the standard. You didn’t search under the regulation. You’re supposed to search under the regulation.”

Preska scheduled another conference call for 2:30 p.m. today to discuss the schedule for a search of the New York Fed.

“Nobody is going to deny you your right to an appeal,” Preska said on the call, “We’re going to do it expeditiously, not in a piecemeal fashion and hand it all off to the Second Circuit.”

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under the emergency programs, saying disclosure might set off a run by depositors and unsettle shareholders.

Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit.

Public Interest

“Our argument is that the public interest in disclosure outweighs the banks’ interest in secrecy,” said Thomas Golden, a lawyer with New York-based Willkie Farr & Gallagher LLP who represents Bloomberg.

Preska’s Aug. 24 ruling rejected the Fed’s argument that the records should remain private because they are trade secrets and would scare customers into pulling their deposits.

“What has the Fed got to hide?” said Senator Bernie Sanders, a Vermont independent who sponsored a bill to require the Fed to submit to an audit by the Government Accountability Office. “The time has come for the Fed to stop stonewalling and hand this information over to the public,” he said in an e- mail.

The Clearing House Association LLC, an industry-owned group in New York that processes payments between banks, filed a declaration that accompanied the request for a stay.

Negative Consequences

“Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow,” Norman Nelson, vice president and general counsel for the group, said in the document. “Our members have accessed the discount window with the understanding that the Fed will not disclose information about their borrowing, especially their identity.”

Members of the Clearing House are ABN Amro Holding NV, Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc.Deutsche Bank AG,HSBC Holdings Plc, JPMorgan Chase Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

This case has fascinating ramifications for the market and economy. It strikes at the heart of who really calls the shots in our country. Do taxpayers live and work at the behest of the Fed or does the Fed have to operate with some reasonable degree of transparency?

We will learn a lot one way or another as this case unfolds. High five to Bloomberg for pursuing this issue. Where is the rest of the media?


  • Bill Venezia Jr

    Hi Larry, love the website. I definitely agree with making the Fed more transparent (and they certainly have made progress in this area over the past decade) but I think that is only one small step in the overall reform needed for that institution. I think the dual mandate and the discretion given to one man (and a board of governors but as we saw with the Greenspan, the one man seemed to overwhelm the board) for up to four terms to have such control over instruments that essentially govern the cycles in the economy and the profitability of financial institutions is mindboggling. And yes, aside from the WSJ, where is the media in holding the Fed accountable for the unprecendented easy monetary policy that was the root cause of the crisis?

  • Larry Doyle

    My oh my!!! Welcome aboard.

    Who is working for who here? Meaning are we all beholden to the banks and the banksters or can we have some transparency and accountability. Aside from Sense on Cents where does one go to get a little sanity these days!!!

    Good hearing from you. Look forward to bantering back and forth and mixing it up while we’re at it.

  • Robert Malvin

    Does anyone have an update on the ruling? What happens if ruling is not stayed? Is the appeal under way and expected to be complete before Monday? Given I can’t find anything indicating Honorable Judge Preska has given the Fed any wiggle room should we expect disclosure on Monday?

  • Larry Doyle

    I believe the judge granted an extension.

  • Ryan

    One of the greatest lessons of the recent crisis has been the role of unitended consequences. While greater transparency is often welcome in financial markets for many reasons, including the elimination of any advantages that might be gained via asymmetric information, the Fed does have a point regarding the idea that (immediate) disclosure of banks requiring assistance might create or hasten a bank failure that otherwise might not occur. While most, if not all would agree that the taxpayer has a right to information, no party involved wants more banks to fail than necessary or a longer and more prolonged economic malaise to be a result of this greater disclosure. Maybe there could be a compromise whereby information is revealed according to a schedule such that significant time has passed since the borrowing activity occurred. Do we have any reason to believe that the Fed is not diclosing information for malevolent reasons? The Wilkie Farr attorney argues that the public’s interest in disclosure outweighs the banks’ interest in secrecy, however it is possible that the public has an interest in secrecy vis-a-vis the safety and soundness of the financial system as a whole. While I think full disclosure is a worthy aim, I fear that a balance may be a better solution and that we might not learn this until we see a few more instances of untintended consequences that might result from greater disclosure.

  • johnny kunitaki

    if you believe in being a slave, that is using fiat
    money created from thin air and paying taxes, which
    pay the interest to the overlords on the creation of
    the fiat currency, why would you need to know the
    overlords secrets? or need the overlord to be
    transparent about his enslavement of the masses which they voluntarily agree to.
    The founders of the constitution mentioned in the 5000 years of mans history ever papaer currency has failed, it fails because the creators of the money cannot
    resist temptation to print more and more. The founders therefore instituted Artical 1 section 8 in the constitution to prevent such such mischieve.
    If you agree to slavery, and you keep paying your
    income taxes you deserve what they are doing to you.
    Be a patriot, cut the tyrants off at the hip pocket.
    I have over 20 years ago. they only punish those still filing.

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