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Land of the Free’dom’of Information?

Posted by Larry Doyle on April 2, 2012 5:53 AM |

Freedom makes all things possible, right? No question.

Information is everything, correct? Also true.

As we pursue the American dream, our ability to access information in order to assess risks and opportunities is paramount to our ultimate success. I personally find this truth to be self-evident. Melding these two basic principles, at this point in our nation’s history, how free is information? Obviously, not all information is free and accessible. In matters of national security, our interests are served by protecting plenty of information.

However, what about other basic information in regard to Uncle Sam’s interactions and exchanges on Wall Street? 

One would think and hope that freedom of information would ring long and loud in this pursuit.

Well, recall how often I have stated that in the Uncle Sam economy circa 2012, the old man is not a good partner. We see further evidence of this playing out as noted financial writer Bill Cohan went hunting for some basic information. I thank the reader who brought this story to my attention. Cohan writes, Why Are the Fed and SEC Keeping Wall Street’s Secrets?:

Getting what should be public information about major Wall Street firms can be maddeningly difficult.

Bloomberg News discovered this in its ultimately successful effort to get information on the $1.2 trillion in “secret loans” the Fed doled out during the financial crisis. And I’ve had no small experience of it myself.

As I started each of my three books — about Lazard Freres, Bear Stearns and Goldman Sachs Group Inc. (GS) — I submitted Freedom of Information Act requests to the appropriate government agencies (the Securities Exchange Commission, the State Department and the Federal Reserve) to obtain whatever documents, memos and e-mails they had about these companies and their senior executives.

I was hoping to find, among other nuggets, details of enforcement actions, or settlements that were reached where the firms “neither admitted nor denied” guilt, or other documentary evidence of the coziness that has for too long existed between Wall Street and Washington.

Sadly, getting this information in anything like a timely basis — say, before my books were finished and published — has been nearly impossible.  To this day, the SEC has given me nothing — zilch, nada — about Bear Stearns or Goldman Sachs.

Last December, nearly nine months after my Goldman book was published, I received an official-looking package from the Board of Governors of the Federal Reserve System. Slapped on the outside of the envelope was a bright orange sticker about keeping the contents — a computer disk — away from “magnets and electric motors” and, of course, the warning “Do Not X- Ray.” This, I suspected, was my long-awaited document file about Goldman’s dealings with the Federal Reserve in the days leading up to Sept. 22, 2008, when it, along with Morgan Stanley, had the good fortune to be allowed to become a bank holding company with lifesaving unlimited access to short-term funding.

I was hoping to discover how that whole thing went down at the time, and how Goldman and Morgan Stanley got the Fed’s blessing but Lehman Brothers Holdings Inc. did not. Also I was interested in Goldman’s interactions with the Fed since that fateful moment. My hopes were raised further when I heard from people at the firm that Goldman had reviewed the contents of what was being sent to me and that its executives seemed worried about it.

No such luck. On the disk was nothing more than a bunch of obscure — but publicly available — Federal Reserve documents about the details of Goldman’s assets and liabilities on a quarterly and annual basis, everything from the kinds of loans the firm had been making to the tenor of its derivatives book to whether the real-estate loans it owns were backed by commercial properties or residential properties. The documents contained a bunch of detailed numbers (without explanation) about the kinds of risks Goldman was taking at a moment in time, thus prying open ever so slightly the firm’s black box.

But let’s not pretend that the Fed’s carefully scripted, and untimely, release of a disk of public information to me is even remotely the way FOIA is supposed to work. Where are the documents and e-mails about how Goldman was allowed by the Fed to become a bank holding company? Where are the documents from the SEC about Goldman? Where, for that matter, are the SEC documents related to the short-dated, out-of-the-money puts that investors spent millions of dollars buying in the last week of Bear Stearns’s existence? The SEC said it was investigating who bought and sold these puts, but it has never made the results of its investigation public despite my FOIA request.

If our government agencies continue to do everything in their considerable power to keep hidden information that belongs in the public realm, all the regulatory reform in the world won’t end the rot on Wall Street.

Cohan is right. Without access to information, the necessary Wall Street reforms will NEVER occur but what will occur and is occurring is that investors will choose not to invest in these opaque financial institutions specifically and play Wall Street’s game in general. That reality is playing out each and every day and the lack of capital flow negatively impacts our nation’s economy.

Navigate accordingly. . . and while you do look for Bill Cohan and his work in your travels.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

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