By Mark Pittman - Bloomberg News
December 12, 2008
(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. The institution confirmed that a records
search found 231 pages of documents pertaining to some of the
requests.
“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, a senior
managing director at New York-based ICP Capital LLC, which
oversees $22 billion in assets.
The Fed stepped into a rescue role that was the original purpose
of the Treasury’s $700 billion Troubled Asset Relief
Program. The central bank loans don’t have the oversight
safeguards that Congress imposed upon the TARP.
Total Fed lending exceeded $2 trillion for the first time
Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12
weeks since Sept. 14, when central bank governors relaxed collateral
standards to accept securities that weren’t rated AAA.
‘Been Bamboozled’
Congress is demanding more transparency from the Fed and Treasury
on bailout, most recently during Dec. 10 hearings by the House
Financial Services committee when Representative David Scott,
a Georgia Democrat, said Americans had “been bamboozled.”
Bloomberg News, a unit of New York-based Bloomberg LP, on
May 21 asked the Fed to provide data on collateral posted from
April 4 to May 20. The central bank said on June 19 that it
needed until July 3 to search documents and determine whether
it would make them public. Bloomberg didn’t receive a
formal response that would let it file an appeal within the
legal time limit.
On Oct. 25, Bloomberg filed another request, expanding the
range of when the collateral was posted. It filed suit Nov.
7.
In response to Bloomberg’s request, the Fed said the
U.S. is facing “an unprecedented crisis” in which “loss
in confidence in and between financial institutions can occur
with lightning speed and devastating effects.”
Data Provider
The Fed supplied copies of three e-mails in response to a
request that it disclose the identities of those supplying
data on collateral as well as their contracts.
While the senders and recipients of the messages were revealed,
the contents were erased except for two phrases identifying
a vendor as “IDC.” One of the e-mails’ subject
lines refers to “Interactive Data -- Auction Rate Security
Advisory May 1, 2008.”
Brian Willinsky, a spokesman for Bedford, Massachusetts- based
Interactive Data Corp., a seller of fixed-income securities
information, declined to comment.
“Notwithstanding calls for enhanced transparency, the
Board must protect against the substantial, multiple harms
that might result from disclosure,” Jennifer J. Johnson,
the secretary for the Fed’s Board of Governors, said
in a letter e-mailed to Bloomberg News.
‘Dangerous Step’
“In its considered judgment and in view of current circumstances,
it would be a dangerous step to release this otherwise confidential
information,” she wrote.
New York-based Citigroup Inc., which is shrinking its global
workforce of 352,000 through asset sales and job cuts, is among
the nine biggest banks receiving $125 billion in capital from
the TARP since it was signed into law Oct. 3. More than 170
regional lenders are seeking an additional $74 billion.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry
Paulson said in September they would meet congressional demands
for transparency in a $700 billion bailout of the banking system.
The Freedom of Information Act obliges federal agencies to
make government documents available to the press and public.
The Bloomberg lawsuit, filed in New York, doesn’t seek
money damages.
‘Right to Know’
“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,” she
said.
The Fed’s five-page response to Bloomberg may be “unprecedented” because
the board usually doesn’t go into such detail about its
position, said Lee Levine, a partner at Levine Sullivan Koch & Schulz
LLP in Washington.
“This is uncharted territory,” said Levine during
an interview from his New York office. “The Freedom of
Information Act wasn’t built to anticipate this situation
and that’s evident from the way the Fed tried to shoehorn
their argument into the trade-secrets exemption.”
The Fed lent cash and government bonds to banks that handed
over collateral including stocks and subprime and structured
securities such as collateralized debt obligations, according
to the Fed Web site.
Borrowers include the now-bankrupt Lehman Brothers Holdings
Inc., Citigroup and New York-based JPMorgan Chase & Co.,
the country’s biggest bank by assets.
Banks oppose any release of information because that might
signal weakness and spur short-selling or a run by depositors,
Scott Talbott, senior vice president of government affairs
for the Financial Services Roundtable, a Washington trade group,
said in an interview last month.
‘Complete Truth’
“Americans don’t want to get blindsided anymore,” Mendez
said in an interview. “They don’t want it sugarcoated
or whitewashed. They want the complete truth. The truth is
we can’t take all the pain right now.”
The Bloomberg lawsuit said 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.”
In response, the Fed argued that the trade-secret exemption
could be expanded to include potential harm to any of the central
bank’s customers, said Bruce Johnson, a lawyer at Davis
Wright Tremaine LLP in Seattle. That expansion is not contained
in the freedom-of-information law, Johnson said.
“I understand where they are coming from bureaucratically,
but that means it’s all the more necessary for taxpayers
to know what exactly is going on because of all the money that
is being hurled at the banking system,” Johnson said.
The Bloomberg lawsuit is Bloomberg LP v. Board of Governors
of the Federal Reserve System, 08-CV-9595, U.S. District Court,
Southern District of New York (Manhattan).
To contact the reporters on this story: Mark
Pittman in New
York at mpittman@bloomberg.net
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