Bloomberg Picks a Fight With the Fed on Disclosure

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krogoth's picture
krogoth
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Bloomberg Picks a Fight With the Fed on Disclosure

Information provider Bloomberg has started a fight with the Federal Reserve that may turn some stones in the secretive private organisation that has never been audited.

Bloomberg had asked the Fed to see documents concerning the collateral the Fed accepts in exchange for freshly digitized credit in its bailouts. The Federal Reserve first insisted on a Freedom Of Information Act (FOIA) request and then said the data required is from the Fed New York which does not fall under the FOIAIn his book "Secrets of the Temple" - the most extensive work about the Fed - William H. Greider highlights the opaque legal status of the Federal Reserve that is neither federal nor has any reserves (besides unlimited fiat currency) but takes the best from both worlds to keep its doors closed to the public. Being the biggest fiat money creator in the world the Fed has never been audited, controls itself and does not even publish a balance sheet that would fulfill the expected norms.A 9-shot salute goes to nakedcapitalism which was the first blog to break this important story. In a sarcastic lead Yves Smith (or Ed Wright) writes up the most important points:

In case you somehow managed to miss it, our friendly pawnbroker of last resort (central bank) has been taking lots of crap (collateral) in return for loans under its alphabet soup of facilities. As we are learaning in our housing meltdown, collateral may not prove to be worth as much as it was said to be at the time the loan was made. Inquiring minds are curious as to what, exactly the Fed has taken, particularly as the numbers are becoming stratospheric.
Bloomberg has asked nicely for some of this information, and is now being forced to sue under to the Freedom of Information Act, and the Fed intends to fight! This ought to be a scandal, but after the TARP, the electorate is seems resigned to taxpayer money being thrown at floundering financial enterprises with little in the way of checks or prudence. If the Fed indeed was taking conservatively valued collateral as it has always claimed it was, there would be no reason for it to attempt to squash this request. The Fed's argument, as I infer, is the loans were made by the Federal Reserve Bank of New York, which isn't a federal agency and thus not subject to the FOIA.

David Merkel's Aleph Blog was quick to come up with five reasons for the Fed's secrecy, all of them most alarming for believers in a free market system. Headlining "What Do You Have To Hide" he lists the following:

  1. The Fed is breaking its own rules, and lending on collateral that it publicly said that it wouldn’t lend against.
  2. They are playing favorites with institutions, and don’t want that to be revealed.
  3. The assets in question are technically in compliance with the rules of the Fed, but are worth far less than the amount loaned against them.
  4. Certain banks would be embarrassed by revealing what they own.
  5. It’s just a power game, and the Fed thinks it is above the law, particularly during a crisis (that it helped to cause).

 

 

The reporters committee for freedom of the press has some technical details on the lawsuit Bloomberg has filed.

Bloomberg News filed a Freedom of Information Act lawsuit against the Federal Reserve system Friday, seeking documents related to the financial services crisis, the news service reported.
The suit, filed in federal court in New York, asks for documents the government says are held by the Federal Reserve Bank of New York. The bank, one of a dozen in the Federal Reserve system, has not complied with FOIA because it has not been considered a government agency.
In contrast, the Federal Reserve Board of Governors in Washington is subject to FOIA. However, the bulk of the documents Bloomberg wants are housed at the New York bank, the Fed told Bloomberg.
According to Bloomberg, the Fed has made loans totalling $1.5 trillion to banks, not including the $700 billion bailout package. Bloomberg is seeking information on the collateral the banks posted for the loans. The news service’s FOIA requests have gone unanswered.

Creditwritedowns joins the team of Fed bashers, publishing the Bloomberg story on the topic and peppering it with criticism on the Fed's overly secretive style that should be a thing of the past.

For those of you concerned about the Fed's risky behavior, its ballooning balance sheet, and its acceptance of dodgy collateral, well you may be about to see whether the American democracy can allow this unchecked power to continue without oversight. Bloomberg News has sued the Federal Reserve to force them to reveal what kind of collateral they are accepting in loaning out trillions of dollars to U.S. banks.
The Federal Reserve, a quasi-government body (which strictly speaking is a private corporation in that it is owned by member banks), has been accepting assets of ever more dubious quality in a bid to liquify the U.S. banking system. Moreover, their efforts should be considered highly inflationary and a long-term threat to the value of the U.S. dollar and to the American economy.
The Fed balance sheet is expected to balloon to $3 trillion by the end of the year, up from $900 billion in August -- a rise in the Fed’s balance sheet from 6% of GDP to more than 20% of GDP in four months. In Japan, which was known for quantitative easing during its own deflationary crisis, the central bank’s balance sheet rose progressively from 9% of GDP to 29% of GDP. But this was over ten years from 1994 to 2004. At the current pace, the Fed might do in six months what it took ten years to do in Japan. Amazing.

Bloomberg had published this story last Friday:

Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.
The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages.
"The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry,'' said Matthew Winkler, the editor-in-chief of Bloomberg News, a unit of New York-based Bloomberg LP, in an e-mail.
The Fed has lent $1.5 trillion to banks, including Citigroup Inc. and Goldman Sachs Group Inc., through programs such as its discount window, the Primary Dealer Credit Facility and the Term Securities Lending Facility. Collateral is an asset pledged to a lender in the event that a loan payment isn't made.
The Fed made the loans under 11 programs in response to the biggest financial crisis since the Great Depression. The total doesn't include an additional $700 billion approved by Congress in a bailout package.
Fed's Position
Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public.
Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply.
The Fed staff planned to recommend that Bloomberg's request be denied under an exemption protecting "confidential commercial information,'' according to Alison Thro, the Fed's FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said today before the filing of the suit. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn't subject to the freedom of information law.
"This type of information is considered highly sensitive, and it would remain so for some time in the future,'' Thro said.
The Fed didn't give Bloomberg a formal response because "it got caught in the vortex of the things going on here,'' said Michael O'Rourke, another member of the Fed's FOIA staff.
The case is Bloomberg LP v. Federal Reserve, U.S. District Court, Southern District of New York (Manhattan).

joe2baba's picture
joe2baba
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Re: Bloomberg Picks a Fight With the Fed on Disclosure

kill the fed spill its blood ........kill the fed spill its blood

here is the ruling by the FEDERAL judge in advance. "sorry folks but the fed is not a govt agency

therefore is not subject to foia .......................next"

 

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Re: Bloomberg Picks a Fight With the Fed on Disclosure

Agreed Joe,

They run with their own set of books.  We've got as much hope of finding out where this money went as we have of changing the weather.  (which BTW is friggin' cold right now!) 

We as a nation of enslaved fools, are screwed - and frankly without so much as the courtesy of a reach-around.

Good luck to Bloomberg at the courthouse - they won't get past the metal detectors at the first checkpoint.

Bob 

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Great post Krogoth

Well done.

(Insert golf clap here)

I think this needs to be elevated and be seen by everybody...this is a very important issue.  I am more than a little surprised that Bloomberg made an issue of it.  

Are cracks developing in the mighty Wurlitzer?

 

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Bail-Outrage: Misuse of Funds, Lack of Transparency a National D

Bail-Outrage: Misuse of Funds, Lack of Transparency a National Disgrace

Posted Nov 11, 2008 03:37pm EST by Aaron Task in Newsmakers, Recession, Banking
Many Americans are understandably outraged by the bailout fever that has gripped Washington this year. But even those who believe the bailouts are a "necessary evil" would have a hard time defending some of the bailout-related items that have come to light in recent days, including:
  • Financial institutions using TARP bailout money to pay executive bonuses. The firms, of course, say it's "different" money and bonuses are key to retaining top employees. But if you need to come to the government for a handout, shouldn't your executives forgo a bonus? Or shouldn't the government make canceling bonuses a condition of getting aid, as is the case in Europe?
  • The Fed refusing to reveal who received almost $2 trillion in non-TARP loans, or what collateral it has accepted from "emergency" loans made to struggling firms, as Bloomberg reports.
  • The Treasury Department providing a tax break to banks involved in acquisitions that could amount to $140 billion. The Washington Post reveals the change to the tax code was issued on Sept. 30, while Congress was debating the $700 billion TARP bill.

The bailouts are bad enough. But this kind of chicanery and lack of transparency makes me recall a line from another time when fear and deceit dominated Washington: Have they no shame, at long last?

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Re: Bail-Outrage: Lack of Transparency a National D

Good video... Important last line by Task:

[quote]"We have a new Administration coming in .. they're gonna do some things right, some things wrong .. let's just hope, they're transparent about what's being done.. with our money"[/quote]

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caroline_culbert
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Re: Bloomberg Picks a Fight With the Fed on Disclosure

I hope they imprison every one of these frauds.  They're no different then the Enron execs that went to prison for cooking the books.  These people don't steal because they don't have to.  Stealing is not in their vocabulary... They call it the law.

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Bernanke an Paulson hiding behind disclosure agreements

Bernanke and Henry Paulson say they are abiding (or hiding) by the disclosure agreements with the companies who are receiving bailout money from the Federal Reserve. SO, in essence they claim agreements have been signed with the receivers to not disclose any details of these transactions or purpose thereof.

The transparency they promised Congress is a total lie, and they both should be not only replaced by Obama's team (which they will) but be prosecuted for lying to a Congressional panel and to the American public in general. They are getting around a lot of this with separate, non congress approved smaller bailouts and tax breaks. Now I am not a big believer in big government, and I am not Republican or a Democrat, but this is getting to the point of being downright insulting. If we need government and citizen scrutiny, we sure as hell need it for this. We should be able to see a breakdown of all spending down to the dime. The Obama administration may be too late to intervene before taking office, and I doubt they will do much because Obama voted for the bailout package. We really need to get the word out how this is happening, because so far as usual, the media is not covering this hard. It should be a top story, but it's not.

This makes me very mad 

 

Fed Defies Transparency Aim in Refusal to Identify Bank Loans  Source: Bloomberg

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.
 


I am hoping that this will be the straw that quickly breaks the camels back, and will wake up America to the serious and illegal acts of the Federal Reserve and The Treasury. What do these people think that they are above the law? Above everyone? They should have all assets seized, and be tried and locked away, or even worse.

 

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rlee
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And all while the World looks on

As a side note to all of this is the perception the rest of the world must be seeing here.  Consider that we as a nation, certainly in the past few years, does not have a crystal reputation.  So now lets pour some salt into this festering wound by showing the rest of the planet just how sleazy and corrupt a government we actually do have.  It's not enough to rape, rob, and pillage from the planet at will, but we have stooped to doing it to ourselves as well.  The issue of power and just how incredible a drug it really is should be examined here.  We have a system without any checks or balances, and the planet is suffering.

We all need to see some extreme changes in world politics, but I fear that we will have such sweeping change, and it won't be what we have in mind on this site!  I too am angered by this disgusting abuse, but I fear the future even more.

 Bob 

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krogoth
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Meet the new boss, same as the old boss

I feel the same way, well half of what you feel. it may be a more destructive form of government then we have now, or change may root out all this BS. It's very hard to speculate on what will happen, but revolution built this country, and it may work again for the right reasons.

 

 

 

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rlee
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Re: Bernanke an Paulson hiding behind disclosure agreements
[quote=krogoth]

Bernanke and Henry Paulson say they are abiding (or hiding) by the disclosure agreements with the companies who are receiving bailout money from the Federal Reserve. SO, in essence they claim agreements have been signed with the receivers to not disclose any details of these transactions or purpose thereof.

[/quote]

 Illegal contracts are NOT enforceable.  What happened to the 'justice' system?!  What the hell is wrong with the media?!  What is going on here?!

"I must have picked the wrong day to quit drinking!"

Bob 

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krogoth
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FOX News joins the battle for information

FOXBusiness Demands Answers on Bailouts

In sports, you can't judge a team without knowing their stats. And here at Scoreboard, we believe there's really no way to judge the effectiveness of what the Federal Reserve and the Treasury are doing with all our money without knowing the stats: exactly how much are we paying out, to whom, and exactly what are we getting in return?

Those stats are, to a great extent, being kept secret from you, so you really can't score what they're doing. Two months after Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke pledged to make the financial rescue plan transparent, we still don't know a lot about who is being helped and what troubled assets the government is buying up. The situation with the Federal Reserve's $2 trillion worth of new loans to troubled banks is worse. Exactly who's taking the loans, and what kind of assets is the Fed getting in return? We really don't know. 

Now, if you've been watching Scoreboard, you know we think that it's very important that we do know what's happening to our money. It was lack of transparency that got us into this mess. Until the world clearly knows who owns what and how much we're paying for it, we won't have confidence restored in our financial system. 

So Fox Business has begun actions to force the U.S. government and the Federal Reserve to share information about all these bailouts with you. If in 20 days the Treasury Department has not responded to our Freedom of Information requests, we are going to sue the Treasury for that information. The government and the Fed have no right to keep this information from you, the very people who are being forced to pay for these bailouts. 

As we’ve said on this program time and again, it's our money, and if we are risking our national Treasury and the future value of our currency for this bailout, the very least we deserve is knowing how much and on what our money is being spent. We are doing this on your behalf and on ours.

 

 

http://www.foxbusiness.com/story/markets/asman-foxbusiness-demands-answers-bailouts/#

 

 

 

 

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