The Bernanke Fed's Bogus Transparency

“The Federal Reserve remains committed to transparency and openness and, in particular, to keeping the Congress and the public informed about its lending programs and balance sheet.” –Ben Bernanke’s testimony before the Joint Economic Committee, May 5, 2009

Federal Reserve Chairman Ben Bernanke talks a lot about transparency at the Federal Reserve, yet Bloomberg News had to file a lawsuit against Bernanke’s Fed for details about its lending programs. Bernanke fought long and hard against revealing American International Group’s (AIG) counterparties and how much they received after the government took a 79.9% slice of the insurance giant last September.

Most recently Bernanke and the Fed cited “bank examination privilege” to avoid questioning under oath by New York AG Cuomo about statements made under deposition by Bank of America (BAC) CEO Ken Lewis who said he was told by Bernanke and then Treasury Secretary Paulson to go through with the acquisition of Merrill Lynch and not publicly disclose Merrill’s larger than expected quarterly loss before the merger took place.

Questioned about the matter at the Joint Economic Committee hearing, Bernanke responded:

I absolutely did not in any way ask Mr. Lewis to obscure any disclosures or to fail to report information that he should be reporting.

This statement is so vague it is meaningless, similar to President Clinton’s “I did not have sex with that woman, Ms. Lewinsky.” Just as it depends on what one’s definition of having sex is, Bernanke’s statement could be technically true but misleading.

No matter. It seemed at least for the moment to placate Committee members probably more focused on the stock market’s newfound euphoria. Bernanke obviously anticipated he would be questioned, and it’s fairly easy to deflect scrutiny when you’re being questioned by a Congressional committee and not by a trial lawyer under oath.

One thing Ken Lewis said in his deposition that was not made public when I wrote “Bernanke’s Transparency Efforts” to me sounds like pure Bernanke, ever eager to do what he thinks will move the market. Lewis said that once Bernanke saw BofA was likely to go ahead with the acquisition, Bernanke told him:

We view you as strong and having acted appropriately in difficult circumstances, that we’ll make sure you continue that way.

He even went so far as to say

We want to do something that when the public hears about it your stock goes up.

That didn’t happen, but - “Once the public hears about it”? Market manipulation? Sounds like the Fed Chairman did not want BofA to fulfill their legal duty under SEC rules to publicly disclose a major adverse effect in Merrill’s earnings that would materially impact BofA’s earnings.

As last week’s Wall Street Journal editorial (“Busting Bank of America”) observes: “Disclosure is not a luxury to be enjoyed only when markets are rising.” As the Journal editorial points out, Bernanke chairs the Financial Stability Oversight Board. Board members are federal regulators who oversee the TARP. Neither Bernanke nor Paulson felt it was necessary to inform the Board at the December 19, 2008 meeting that Ken Lewis wanted to call off the merger over Merrill’s large losses.

Transparency was a topic at the January 8, 2009 Oversight Board meeting. Bernanke and Paulson must have thought it didn’t apply to them and therefore it was not necessary to inform the Board they had committed an additional $20 billion of TARP to BofA for consummating the Merrill deal. It wasn’t until 4:35 PM on January 15, 2009 after media outlets reported the government was going to take a bigger stake in BofA that Bernanke and Paulson informed the Oversight Board.

Yesterday the Senate approved an amendment partially reversing a 30 year ban barring the GAO from auditing the Fed. The Senate’s amendment would allow the GAO to only audit the actions the Fed took using its emergency powers relating to a specific company or partnership, such as Bear Stearns and AIG.

In the House, Rep. Ron Paul recently introduced HR1207 The Federal Reserve Transparency Act, that would allow the GAO to conduct a full audit of the Fed. As of this writing the bill has 124 co-sponsors. As Rep. Paul states in the bill:

Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations.

Disclosure: none

Comments

[conceptwizard:]

Good luck with transparency. The Financial Warlords will never let you see the real picture of the FED. That would open them up to public scrutiny. Well see how far Ron Paul gets before the FED pushes the political buttons.

May 07 11:39 AM

[Jade Queen:]

The latest report is over 140 signers for 1207. They need 70-something more to come up with a majority. If a majority signs on as sponsors, it will be difficult for leadership to obstruct. If it passes in the House, the Senate might obstruct, but over 140 house sponsors is dramatic. The internet will be full of it, and there could be celebrations in the streets, which might be hard to hide. Also, major media has been giving Ron Paul air without messing with his mike, jamming his earpiece, or otherwise sabotaging. Some congresspeople must be squirming, not to mention their patrons. Maybe we will get perp walks and more undercover bugging records. Hefty fines may accompany the walks. Retail clerks' should not have to pay for prisons to house these guys, but it could be entertaining to see them in new outfits, say, Osh-Koshes. The implications for investing over the long term are to invest in things that help people be independent of government and corporations that depend on government for subsidy and protection.

May 08 03:30 PM

[PainfullyAware:]

A journey of a thousand miles begins with a first step.

Lets hope that Ron Paul gets his sponsors and Cuomo is able to continue his efforts.

May 08 04:30 PM