Dear Fed: What Do You Have to Hide?

Bloomberg sues the Fed for refusing to disclose what sort of collateral they are lending against.  I come at this from having worked in insurance for two decades.  Insurers have to disclose every asset that they own in their Statutory filings.  When I looked at a bank’s call report recently, I was surprised to see only summary data available.  The insurance industry has high disclosure, and it hasn’t hurt them.  Why should the Fed cower, and refuse to reveal what they are lending against?  Five possibilities, and none of them good:

• The Fed is breaking its own rules, and lending on collateral that it publicly said that it wouldn’t lend against.
• They are playing favorites with institutions, and don’t want that to be revealed.
• 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.
• Certain banks would be embarrassed by revealing what they own.
• It’s just a power game, and the Fed thinks it is above the law, particularly during a crisis (that it helped to cause).

For another example, I would be happy to see who they are lending to in their CPFF program.  Are they lending a lot to AIG through CP?  Anyone else notice that AIG is A-/A3 from S&P and Moody’s which would make them A-2/P-2, and ineligible for the Fed to lend to, but S&P and Moody’s still have them at A-1/P-1.  Weird.

In my opinion, there is no good reason why the Fed can’t disclose the collateral, and the institutions involved.  They assure us that they are being upright and prudent; let them prove it.

Comments

[Smarty_Pants:]

e) All of the above.

The FED and USTreasury are in "wing it" mode. Legal technicalities are ignored and Congressional oversight doesn't understand or care.

Unfortunately the steps taken will only alleviate the symptoms while spreading the disease. You can't borrow your way out of debt.

2008 Nov 08 10:11 PM

[investor88:]

Good article and good comments. It just goes to show that this crisis is far from ending with so much skeletons around.

2008 Nov 09 09:10 AM

[jepittman:]

The Fed is in 'defend the system' mode. We have been very close to a systemic breakdown and the Fed is backstopping everything. Yes the collateral is lousy but 'mark to market' has undervalued a lot of good paper too. I say let them do what they feel they need to do. This is all highly inflationary but that is down the road and right now there are no acceptable alternatives.

2008 Nov 09 10:34 AM

[Industry_guy:]

Excellent article and something that needs to be addressed. This is hypocracy and all tax payers, as "shareholders/stakehol... of the government, deserve full disclosure.

2008 Nov 09 01:30 PM

[moonbat1775:]

"Dear Fed: What Do You Have to Hide?"

The fact that it is one of the hugest monstrosities ever visited on mankind for transferring wealth to the banker class?

2008 Nov 09 03:06 PM

[TinyTim:]

Now that everyone (like car companies and credit card companies) seems to have their hand out for a piece of the TARP $700B, the fact that there were no stipulations as to where the money was going seems like a gaping loophole. In fact, I believe it gives Paulson carte blanche. Seems like the banks are keeping it instead of lending it as intended. Another loophole?

2008 Nov 09 04:19 PM

[HangingOnBy...:]

Just trust them. Much like Barney Frank did the financial institutions. Surely they'll do the right thing.

2008 Nov 09 06:48 PM

[poliziano:]

<A HREF="www.democracynow.org/2...">Klein</A>.

2008 Nov 17 08:08 PM