[Infowarrior] - Fed Refuses to Disclose Recipients of $2 Trillion in Lending

[Richard Forno]

Fed Refuses to Disclose Recipients of $2 Trillion in Lending

http://www.bloomberg.com/apps/news?pid=20601109&sid=apx7XNLnZZlc&refer=home#

By Mark Pittman

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. 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, who oversees about $14 billion at New York- 
based ICP Capital LLC.

Bloomberg News is a unit of New York-based Bloomberg LP.

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  
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.”

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.”

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.”

‘Multiple Harms’

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.

“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 comply with congressional demands for  
transparency in a $700 billion bailout of the banking system.

‘Right to Know’

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.”

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 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.”

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 at bloomberg.net 
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Last Updated: December 12, 2008 00:01 EST