Governmentattic.org has posted several documents from the Federal Reserve in response to a FOIA request about the Fed's lending activities related to the credit crisis. We spent some time combing through the documents, and as previous news reports suggested, the Fed's reputation for opacity and secrecy is alive and well.
Here's the back story: Bloomberg reporter Mark Pittman filed a FOIA request last year in an attempt to get the Fed to disclose the recipients of some $2 trillion in loans, and to identify the assets it accepted as collateral. The Fed has authority under section 13(3) of the Federal Reserve Act to make discounted emergency loans, and has greatly expanded its emergency lending in response to the ongoing financial crisis. In fact, as Bloomberg points out, total Fed lending rose by well over $1 trillion following a decision in September 2008 by central bank governors to accept lower-rated securities as collateral. Bloomberg requested detailed, transaction-level information on the recipients and terms of the loans distributed by the Fed between April 4 and October 25, 2008.
But in a five-page response, Board Secretary Jennifer Johnson told Pittman that the Fed was withholding over 2,000 pages of information under the (b)(4) and (b)(5) FOIA exemptions, which protect against the disclosure of "trade secrets" and "inter-agency or intra-agency memorandums or letters." Many banks have opposed the release of records about the Fed's lending because it would signal their weakness and potentially reveal too much information about the value of their riskier assets. Scott Talbott, senior VP of government affairs for the Financial Services Roundtable, explained that "taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system." Johnson even argued that the Fed's secrecy "ultimately advances the interests of taxpayers, preserving the integrity and effectiveness of financial stability measures and, in the long term, preserving an opportunity for maximum recovery by the Federal Reserve Banks in the event of default by individual borrowers."
What little information the Fed did disclose is almost completely redacted (click below to view the documents). In a few pages, there is simply a passing reference to “IDC,” which stands for Interactive Data Corporation, a seller of fixed-income securities information.
Pardon our skepticism, but we have a hard time seeing how taxpayers' interests are protected by the Fed's decision to withhold information on what it did with trillions of taxpayer dollars. How are we to reconcile the Fed's behavior with Ben Bernanke's statement before Congress that "central banks should be as transparent as possible, both for reasons of democratic accountability and because many of our policies are likely to be more effective if they are well understood by the markets and the public"? On that note, Ron D'Vari, CEO of NewOak Capital LLC, said that he'd "love to hear the methodology, how the Fed priced the assets. That would unclog the market very quickly." It's also worth pointing out that the Fed has been tight-lipped about its efforts to protect against conflicts of interest among the firms that are managing its mortgage-backed securities purchase program.
Bloomberg has filed a lawsuit to obtain details about the Fed's lending activities, arguing that the collateral lists are "central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression." It remains to be seen whether or not the Fed will be more responsive to questions from Congress about its expenditure of trillions of taxpayer dollars. Meanwhile, the Washington Post reported this weekend that a federal judge has ordered the Treasury Department to hand over records to Fox News related to the bailout money it spent on AIG, Bank of New York Mellon, and Citigroup.
-- Michael Smallberg