The news came in Monday that President Obama has appointed Ben Bernanke to another four-year term as Chairman of the Federal Reserve, putting an end to months of speculation that he might appoint a Democrat to the position. In announcing his decision this morning, Obama praised Bernanke for “his background, his temperament, his courage, and his creativity,” and observed that the “bold, persistent experimentation” carried out under Bernanke’s leadership “has brought our economy back from the brink.”
While Obama’s announcement has been generally well-received (The Wall Street Journal has compiled a sampling of reactions from economists, lawmakers, and bloggers), Bernanke will surely face some tough questions at his Senate confirmation hearing about the controversial actions the Fed has taken over the past year and a half in response to the financial crisis. These actions have ranged from large-scale asset purchases to the creation of new lending facilities and loan guarantees, as well as the support of specific institutions such as AIG and Citigroup. According to the latest report to Congress by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), the total amount of potential support provided by the Fed could reach at least $6.8 trillion (see pp. 139-149 for a more detailed breakdown of the Fed programs).
In considering his appointment to a second term, we hope the Senate will take a particularly hard look at Bernanke’s long-standing pledge to improve transparency at the Fed. Bernanke told Congress earlier this year 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.” So far, however, the Fed has been extremely reluctant to disclose even the most basic information about its bailout programs. For example, it took months of sustained pressure from Congress, the media, and groups like POGO for the Fed to disclose the names of AIG’s counterparties, even though these were the firms that were largely benefitting from the government’s unprecedented assistance to the insurance giant. POGO has also been working hard to uncover some basic information about the private asset managers that are running many of the Fed’s programs.
As long as the Fed insists on operating under a veil of secrecy, POGO and others will continue to take matters into their own hands. This month, we joined a growing coalition of groups from across the political spectrum that are supporting legislation to allow a full and complete audit of the Fed. The Federal Reserve Transparency Act of 2009 (H.R. 1207)—introduced by Rep. Ron Paul (R-TX) and endorsed by hundreds of co-sponsors—would remove a restriction that currently prevents the GAO from auditing the Fed’s most important activities. Although Bernanke and other Fed officials fear that audits could threaten the Fed’s independence, the GAO has been arguing for decades that it needs this authority, telling Congress in 1977 that “we do not see how we can satisfactorily audit the Federal Reserve System without authority to examine the largest single category of financial transactions and assets that it has.” We remain hopeful that Congress can agree on legislation that would protect against the disclosure of sensitive information while still allowing the GAO to examine the Fed’s most basic operations.
In the meantime, Bloomberg News has moved one step closer to forcing the Fed to release records on its emergency bank loans. Last year, Bloomberg reporters Mark Pittman and Craig Torres filed FOIA requests seeking information on some of the Fed’s lending facilities, including details about the recipients and terms of these loans. The Fed withheld many of these documents, citing the FOIA exemptions on trade secrets and intra-agency memorandums, so Bloomberg sued to compel the disclosure of these documents and to force the Fed to search for additional records at the Federal Reserve Bank of New York. Manhattan Chief U.S. District Judge Loretta Preska ruled yesterday that the Fed improperly withheld its records and must turn them over within five business days, and must also search for additional records at the New York Fed in order to fully comply with the FOIA requests. Perhaps most importantly, Judge Preska rejected the Fed’s argument that disclosing the names of the loan recipients would somehow cast a stigma on these firms:
"The Board would seemingly sweep within the scope of Exemption 4 all information about borrowers that anyone throughout the entire marketplace might consider to be negative. The Exemption cannot stand such inflation...The Board essentially speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programs were to be disclosed...Conjecture, without evidence of imminent harm, simply fails to meet the Board’s burden of showing that Exemption 4 applies." (emphasis in original)
The Court’s ruling comes as welcome news, but we wish it didn’t take months of kicking and screaming to compel the Fed to reveal some fairly straightforward information about its trillion-dollar lending programs. Assuming his reappointment is confirmed, we call on Bernanke to disclose more of this information upfront and to allow the GAO to audit the Fed’s records. If Bernanke really wants to follow through on President Obama’s commitment to “creating an unprecedented level of openness in Government,” this would certainly be a good start.
-- Michael Smallberg