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 user 2008-12-29 at 9:46:43 am Views: 62
  • #21169

    Fed Refuses to Disclose Recipients of $2 Trillion
    08 — 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’
    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
    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’
    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).