In a perfect followup to yesterday’s post, the Federal Reserve has lost a key battle in the fight for transparency and its good friend accountability…
Court Orders Fed to Disclose Emergency Bank Loans
The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit. Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.
The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.
This was yesterday’s news (and very difficult for me not to post). Today, the Fed is showing what they think of the ruling…
Federal Reserve Seeks Delay in Disclosure of Emergency Lending
The Federal Reserve asked a judge to delay enforcement of her decision requiring the central bank to identify companies in its emergency lending programs.
Chief U.S. District Judge Loretta Preska in Manhattan said on Aug. 24 that the Fed had until Aug. 31 to disclose daily reports on borrowing by banks and other financial institutions. The central bank wants Preska to stay her order, made in a Freedom of Information Act lawsuit, until the U.S. Court of Appeals in New York can act on an appeal that the Fed said it intends to file.
The Fed and U.S. banks would suffer irreparable harm if details of the loan programs were made public, according to the central bank’s senior counsel, Yvonne Mizusawa…
“There are numerous examples of financially sound institutions collapsing or suffering further financial deterioration from the loss of public confidence,” Norman Nelson, vice president and general counsel for the group, said in the document.
Mizusawa and Nelson’s arguments almost make me laugh. Nelson makes it seem like these banks are perfectly healthy and this disclosure would sink banks rather than their own impaired condition. He never seems to mention that these banks are probably already in big trouble and the lending is possibly the only thing keeping them afloat. Shouldn’t the lenders (taxpayers) have a right to know what they’re investing in? According to these two, the Fed can only do right and therefore should have their acts held in complete secrecy. Imagine if your broker failed to disclose your investments because it might alert other people to their game? You’d rightfully pull your money unless they could tell you the full story. This is no different- every American has skin in the game and has a right to know where their hard earned money is going.
This is merely the first step. Assuming the appeal is rejected (and I have every reason to believe it will considering their legal argument is almost non-existent), there will almost certainly be numerous revelations from Bloomberg’s investigation. As an investor and lender, we have a right to first understand who is participating in these lending programs. Then we deserve answers about what these programs actually are and how they’re performing. The more specific performance related details can be detailed in a Fed audit from HR 1207. Expect significant resistance from those with something to hide and much to lose. Bloomberg deserves accommodation for their efforts in investigating the Federal Reserve. The media response and investigation has shed an embarrassing light on the quality of today’s journalism, but clearly demonstrated the class of financial reporting. Every media outlet will eventually have plenty to report from the revelations to come but Bloomberg was the sole participant in digging into the shades of corruption and abuse. Kudos to their efforts!
While it’s easy to criticize the American response to this depression, there are many other governments participating in the same misleading behavior. Look at China…
China’s 2% Inflation Estimate Puzzles Economists as Prices Fall
A Chinese government estimate that inflation may be 2 percent for 2009 is puzzling economists after prices fell for six of the past seven months.
The Ministry of Commerce made the estimate in a statement on its Web site yesterday, citing rising demand and gains in commodity prices.
“It’s just impossible,” Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co., said today. Inflation would have to jump to more than 6 percent for the rest of the year to bring the average to that level, said Wang, who forecasts a 0.5 percent decline in prices for 2009.
The People’s Bank of China said last month that consumer prices may rebound after bottoming out in the third quarter. Central banks around the world are gauging the risk that monetary policies aimed at easing the worst economic slump since the Great Depression will trigger inflation.
Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong, also said that a 2 percent increase is “not possible” and speculated that the commerce ministry may have been referring to the possible gain in a single month.
China is well known for distorting official statistics so this is hardly surprising. The US government hasn’t quite gone to this extreme but should be careful… the public confidence everyone so often cites would be adversely affected by treading down this path. The Fed would be wise to hand over these documents voluntarily and become significantly more transparent. So far, it doesn’t appear likely.
You say…..”China is well known for distorting official statistics so this is hardly surprising. The US government hasn’t quite gone to this extreme but should be careful… the public confidence everyone so often cites would be adversely affected by treading down this path.”
I am so angry in the morning for some reason….maybe I should wait until later in the day to post after a few glasses of wine…but here goes anyway. Public confidence is only expressed by those uninformed. This government routinely and intentionally distorts statistics…..how about missing the deficit growth by some $2 trillion? Recall just 5 months ago the economic forecast they issued with an unbelievable 4% growth factor in it? Talk about distortions and going to an extreme. Now, I understand there are numerous uncertainties in any forecast, but this was a reckless forecast issued purely for political purposes to help ram the “stimulus” bill through. There are other examples like ObamaCare…increased costs will be offset by future savings….ya, sure, unfortunately BHO and his band of useful idiots (I include the Fed in this band) did not get the CBO on board with that distortion. For God’s sake, the entire “stimulus” was a distortion. My point, which is irrefutable, is that this BHO regime is pretty good at, and becoming well know for, distorting official stats no different then the command and control economies of China and Russia. I am encouraged by the seemingly renewed effort on the part of the public to call them on it though. They are rapidly loosing public confidence. Our only chance for recovery is that we can keep the pressure on, minimize the damage from their misguided radical policies (yes, I still want them to fail and fail quickly) and throw them out in 2011. Now that is change I can believe in.
Oh yeah there’s no doubt we’re seeing incredible statistical distortion for political purposes. This is nothing new. I’m just saying at least we don’t need to question the accuracy of GDP, CPI, unemployment, etc. While I disagree with how these are measured, there’s at least transparency so we can measure the true inflation number for example. If not, there’s enough watchdogs and private sources to quickly identify the true statistics. in the China’s and Russia’s of the world, there are zero trustworthy numbers and extreme difficulty in finding private sources to closely approximate it. My point in including this article was to illustrate what the Fed’s behavior resembles. The government has a long way before reaching this status although I will admit a disturbing trend in that direction.
By the way, why so angry yesterday? We won- the Fed having to give this information is quite possibly the best economic news we’ve had in years. Celebrate the few times we get quality stories like that! Although on a normal day, it won’t matter whether you’re reading it in the morning, night, or in your sleep. The amount of outrageous stuff taking place is too much. Every time I write about the Fed, my blood get boiling too. It’s hard to write and at least try to sound rational and logical when that is the chosen topic!