Chalk one up for the people’s right to know over the bank arm of the government’s right to spend our money unchecked.
The Supreme Court rejected the too-big-to-fail banks’ appeal of a federal court ruling forcing the Federal Reserve to obey the Freedom of Information Act and release data initially requested by the late Mark Pittman of Bloomberg News.
Here’s Bloomberg today:
The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed’s unprecedented $3.5 trillion effort to stem the 2008 financial panic.
“I can’t recall that the Fed was ever sued and forced to release information” in its 98-year history, said Allan H. Meltzer, the author of three books on the U.S central bank and a professor at Carnegie Mellon University in Pittsburgh.
At the height of the financial crisis, Pittman requested records from the Fed on its emergency lending to banks. He wanted to know what kind of collateral the taxpayers took on from the banks in exchange for billions of dollars in loans.
Pittman, who was a friend of mine and Audit Chief Dean Starkman, told me this two years ago:
The thing that people don’t realize is that the Fed is now the “bad bank.” That’s just something that people don’t understand. They’ve taken collateral, and they refuse to tell us how they valued it
We have numerous banks— dozens, maybe hundreds that are insolvent. And they become more insolvent every day because more people quit paying their mortgage loans, and more guys move out of the shopping center, and more people quit paying their credit cards. But nobody wants to have the adult conversation We need to be honest about what the problem is here, how big it is, and how we’re going forward to clean it up, and who’s going to pay for it.
Here’s an extended excerpt from that interview on why Pittman and Bloomberg thought the collateral information was so important. Note that the interview was in February 2009, as the economy and stock market were still crashing and it was unclear where the bottom might be.
The Audit: Basically the charade that’s going on here is that they haven’t marked these assets down yet because that would show they’re insolvent.
Mark Pittman: But a lot of [the assets] have gone to the Fed, though, as collateral for loans. They’re still on their balance sheet, but you borrowed against them. We don’t know if those are cracked CDO’s or prime RMBS
TA: That’s what you guys are suing (the Federal Reserve) for—to find out what the collateral is.
MP: Yeah, and that’s the secret part of the story that nobody wants to let you know.
TA: Because it’s worth pennies on the dollar or dimes on the dollar.
MP: Yeah, and then everybody’s going to go “Oh my God, we’re lending ninety cents on something that’s worth twenty or thirty?”
TA: They say they don’t want to disclose it because it would interfere with the markets, is that right?
MP: Their basic argument is this would cause chaos, and they’re probably right. But that doesn’t mean that the American taxpayer ought to be on the hook for this.
TA: Why would it cause chaos?
MP: Because people would realize that we’re lending eighty cents on the dollar for something that’s worth twenty cents.
TA: So political chaos?
MP: And maybe market chaos, too. Well, you know the market’s probably pretty savvy about this thing, and everybody knows what’s going on but we just haven’t communicated with the public. When you say “political chaos” you might well be right. That may be what it was. Congress is going to go “We’re lending this much money on this Triple-C security? What are we thinking here?”
It’s been nearly two and a half years since Bloomberg filed its lawsuit and nearly a year and a half since Pittman died at 52. Thanks to their efforts we’ll finally get to know what the Fed and the banks tried so hard to hide.
It might be a big deal or it might not, but for the first time they have established that the people have a right to know how the Federal Reserve and its member banks are spending our money.
Bloomberg Editor in Chief Matt Winkler, who deserves a ton of credit for giving the thumbs up to the unheard-of idea of suing the Fed, puts it this way:
As a financial crisis developed in 2007, “The Federal Reserve forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny,” said Matthew Winkler, editor in chief of Bloomberg News. “The Fed must be accountable to Congress, especially in disclosing what it does with the people’s money.”
Amen to that.