Fed Refuses to Disclose Recipients of $2 Trillion in Lending

In a foxhole there are no atheists. But well before the praying begins, you find out what people are really made of. Perhaps the big, muscled kid who was unstoppable in basic training goes all to pieces while the skinny guy with the thick glasses saves everyone’s bacon. Or vice versa. The point being that prior to a crisis everything rests on appearances. During a crisis it is actions that matter. That’s when we find out what people, and institutions, are really made of.

Today the Federal Reserve effectively freaked out in the foxhole and declared the spirit of democracy, if not the rule of law, to be disposable conveniences of better times.

In response to a freedom of information act request by Bloomberg News for the names of the institutions receiving public money, the Fed invoked an obscure rule to block the release of this information.

Dec. 12 (Bloomberg) -- The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information.

Trade secrets? A trade secret is something like the formula for Coke. A trade secret is an unpatented business process the release of which would harm the competitive position of the holder. I am really at a complete loss to understand what sort of “trade secrets” might apply to the acquisition of bad debt from poorly managed financial institutions.

If anybody can supply one that might make sense in this situation I am all ears.

The important principle here is that democracy cannot operate under the cover of darkness. If every emergency, no matter how slight, results in the immediate suspension of our right to know, then one might reasonably question whether it is a right at all and whether this is a democracy.

This is not an esoteric debate over some fine point of the law, this is a foundational matter. Either rules and laws matter or they don’t. Either they need to be followed by everybody or they can be ignored by everybody. There is no place in our legal system for each interested party to self-interpret laws in whatever manner fits them best.

If the Fed can unilaterally decide to follow some rules and not others, then why not anybody else? Would it be unreasonable for an individual to decide that their mortgage does not need to be repaid because they suddenly interpret their contract differently and to their benefit? Are they really “speed limits” or are they more like “speed guidelines?”

I am being quite serious here, the rule of law is not something to be trifled with. Either we are a nation of laws or we are not. It is no small point that our rule of law is one of the most essential components of our social contract and which separates us from other countries where I would not willingly choose to live.

The Freedom of Information Act requires federal agencies to make government documents available to the press and the public. The suit, filed in New York, doesn’t seek money damages.

“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press. “It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed.”

Did you catch those words and phrases? “Requires” and “right to know” are pretty straightforward. Requirements and rights are not really negotiable. They either exist or they don’t.

Predictably, the Fed claimed that this crisis is serious enough to trump our assumed (but rarely tested) right to know.

In its response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” when the “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

But some are starting to catch on and noting that it is really not acceptable that a supposedly public institution is refusing to operate in a manner consistent with their charter.

“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, who oversees about $14 billion at New York-based ICP Capital LLC.

Congress is demanding more transparency from the Fed and Treasury on the bailout efforts, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had “been bamboozled.”

But now that the Fed has decided, unilaterally, to operate under the cover of secrecy I think they should be allowed to do so.

Of course I would also require that their operating charter be revoked and that a parallel currency be stood up so that we the people could decide for ourselves whether the Fed’s arguments for secrecy were worth risking our entire economic future upon.

Said another way, I am willing to let the Fed take all the primary risks it wants but not with my money. Let the Fed either swim or sink depending on how it plays its hand. Taxpayers should not be forced to shoulder whatever these risks are that the Fed feels are too dangerous to even name.

Otherwise people might begin to wonder about that “requirement” to pay back their credit card bills….