Fed Fights For Its Secrets

A judge has ordered the Federal Reserve Board to give up at least some of its secrets.  In deciding a complaint filed by Bloomberg News last November, U.S. District Judge Loretta Preska told the Fed it must release details about its various crisis-liquidity programs no later than August 31.

When the banking system began to melt down last year, the Fed made billions in loans to supposedly save the economy.  To whom and on what terms is the subject of the current litigation.  The beneficiaries of these loans wish to remain anonymous.  The Fed appears to be stalling for time while it plans an appeal.

Bloomberg’s argument is simple, according to attorney Thomas Golden: “… the public interest in disclosure outweighs the bank’s interest in secrecy.”  The Fed argues that the recipients, if publicly identified, will face “irreparable harm” and the Fed’s ability to respond to future crises will be impaired.

I am not sure I understand how releasing this information will hurt anyone.  Surely we can all make a very good guess which dozen or so large banks and brokerage firms are on the list.  The talk about loss of confidence and bank runs is just silly: we’ve already had bank runs.  The Fed dealt with them effectively, at least for now.  Ben Bernanke and his associates have made it crystal-clear that systemically-important banks will be protected, whatever it takes.  If anyone is in danger, it is the banks that are NOT on the list because we will know that the Fed does not regard them as “too big to fail.”

This idea that identifying who received loans somehow threatens the banking system is also inconsistent with everything else the Fed tells us.  Ben Bernanke himself took credit earlier this month for saving the world from economic disaster.  He can’t have it both ways.  Either the worst is behind us and the system is stable, or the banks are still in such a perilous state that revealing who needed help in the midst of crisis is unacceptably risky.

The Federal Reserve’s defense is so transparently ridiculous that they must know they will eventually lose.  So why the fuss?  Because they are accustomed to operating in secrecy, as are the banks who receive the Fed’s favors.  This doesn’t work in the digital world.  Any bank that cannot survive without secret loans from the state should not exist in the first place, so I’ll be glad to see some of them fall.  They brought it on themselves.