In November of 2008, I reported a lawsuit brought by Bloomberg News which requested the Federal Reserve disclose which securities it had accepted on behalf of taxpayers as collateral for $1.5 trillion in loans to banks during the financial crisis (see original story here). Since then, the courts have backed Bloomberg’s suit under the Freedom of Information Act which:
generally provides that any person has a right of access to federal agency records. This right of access is enforceable in court except for those records that are protected from disclosure by the nine exemptions to the FOIA, which are discussed in the text.
The Fed has decided not to try to maintain its secrecy despite previous legal setbacks. Meanwhile the bailed out banks are going to the Supreme Court to keep the loan details from coming to light. Bloomberg explains below (video attached):
The Federal Reserve won’t join a group of the largest commercial banks in asking the U.S. Supreme Court to let the government withhold details of emergency loans made to financial firms in 2008.
The central bank’s decision not to appeal makes it less likely the high court will hear the case, said Tom Goldstein, a Washington lawyer who has argued 22 cases before the high court since 1999 and whose Scotusblog Website tracks the panel.
The Clearing House Association LLC, a group of the biggest commercial banks, filed the appeal today. Under federal rules for appeals, a lower court’s order requiring disclosure remains on hold until the Supreme Court acts…
“We will await a determination from the courts and will comply fully with any final order,” said David Skidmore, a spokesman for the central bank. “The Federal Reserve remains committed to timely and responsible transparency of its operations.”
The bank group is appealing a federal judge’s August 2009 ruling requiring the Fed to disclose records of its emergency lending. Bloomberg LP, the parent company of Bloomberg News, sued for the release of the documents under the Freedom of Information Act.
The central bank has never disclosed the identities of borrowers since the creation in 1914 of its Discount Window lending program, which provides short-term funding to financial institutions, the Clearing House said in its petition.
‘Threatens to Harm’
“Disclosure of this information threatens to harm the borrowing banks by allowing the public to observe their borrowing patterns during the recent financial crisis and draw inferences — whether justified or not — about their current financial conditions,” the group said in its appeal.
The Fed’s emergency programs, which were “essential responses to the recent financial crisis,” would be harmed if the central bank is forced to disclose lending records, the group said in a statement today. “Unless the ruling is overturned by the U.S. Supreme Court, businesses and individuals may decline to participate in these programs, possibly impairing the federal government’s ability to act effectively in times of crisis.”
“Greater transparency results in more accountability, and the banks’ resistance continues to engender suspicion among taxpayers about the bailouts,” said Matthew Winkler, Bloomberg News editor-in-chief. “The banks’ move to appeal will deepen the public’s skepticism and defend a position that every other court has disagreed with. The public has the right to know.”
Winkler’s comments are very much to the point just days before the mid-term election. Americans are tired of special interests benefitting from opaque negotiations done in secret using their money. This is a major reason the "Audit the Fed" campaign had much grassroots backing. I would anticipate that this issue could gain currency after the election due to yet more quantitative easing by the Fed, particularly if the Fed begins buying more non-Treasury assets.
The Obama Administration has promised a whole new era of government transparency. Yet, time and again, when push came to shove it has backed secrecy and executive privilege. Glenn Greenwald has pursued this regarding Administration arguments on the U.S. government’s programs on privacy, indefinite detention, rendition, torture and assassination.
Ironically, as the Fed has given up on blocking Bloomberg’s access to the records associated with the loans to banks, the Treasury has not granted access to records on the three Obama-Bush Citi bailouts. Again, Bloomberg reports:
The late Bloomberg News reporter Mark Pittman asked the U.S. Treasury in January 2009 to identify $301 billion of securities owned by Citigroup Inc. that the government had agreed to guarantee. He made the request on the grounds that taxpayers ought to know how their money was being used.
More than 20 months later, after saying at least five times that a response was imminent, Treasury officials responded with 560 pages of printed-out e-mails — none of which Pittman requested. They were so heavily redacted that most of what’s left are everyday messages such as “Did you just try to call me?” and “Monday will be a busy day!”
None of the documents answers Pittman’s request for “records sufficient to show the names of the relevant securities” or the dates and terms of the guarantees. Even so, the U.S. government considers the collection of e-mails a partial response to an official request under the federal Freedom of Information Act, or FOIA. The Justice Department in July cited an increase in such responses as evidence that “more information is being released” under the law.
President Barack Obama vowed to usher in a new era of open government. On Jan. 21, 2009, the day after his inauguration and a week before Pittman submitted his FOIA request, Obama directed agencies to “adopt a presumption in favor of disclosure, in order to renew their commitment to the principles embodied in FOIA.”
Limits of Transparency
The saga of Pittman’s request shows that the promise of transparency has its limits when it comes to the government’s intervention in the financial industry, which at its peak reached $12.8 trillion in commitments. From the 2008 Bear Stearns Cos. rescue to the Federal Reserve’s policy of quantitative easing in 2010, the Obama administration has delayed disclosures and defended its right to secrecy in court, said Tom Fitton, president of Judicial Watch Inc., which describes itself as a conservative foundation.
“This is an unprecedented crisis for open government,” said Fitton, whose Washington-based organization says it sued the Bush administration 48 times over disclosure issues. “When it comes to the bank bailout, the Obama administration has made a decision to err on the side of secrecy.”
The US government is going to fight to the bitter end to keep up a veil of secrecy on the largest bailout in history even though these events are two years in the past. In my view, this will only harden voters’ disenchantment with government generally and will increase the desire of Americans for smaller and less activist government. When the next crisis comes – as it most certainly will, there will be no bailouts.