Federal Reserve Fighting to Keep Its Bailout Secrets

The Federal Reserve is trying to ensure that what happens at the Fed, stays at the Fed.

In the first of two brewing legal battles, the Federal Reserve is trying to avoid disclosing the details of the $2 trillion U.S. loan program that kept banks afloat after Lehman Brothers Holdings collapsed in September 2008. Bloomberg News sued the Fed under the Freedom of Information Act, seeking the names of those institutions that were given loans under the program and details about how much they received. On Aug. 24, 2009, U.S. District Judge Loretta Preska ordered the release of the information, but postponed implementation of her ruling pending an appeal; the U.S. Court of Appeals in Manhattan will hear the case today.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Meanwhile, the Federal Reserve and Treasury Secretary Timothy Geithner find themselves defending the Fed's decision to keep secret the details of which companies got the $62 billion in AIG bailout money.

Both cases illustrate the special privileges given to financial firms in the midst of one of the worst recessions in U.S. history.

The Fed's balance sheet has doubled during the crisis, when it began extending credit directly to companies that weren't banks for the first time since the 1930s. Bloomberg, which is majority-owned by New York Mayor Michael Bloomberg, filed its FOIA suit in November 2008 asking the courts to order the Fed to reveal which firms were lent money under the special lending programs, the amounts, and the assets they used as collateral. As of Sept. 23, 2009, the special lending totaled $2.14 trillion, but the pubic still doesn't know precisely who got that money.

The Fed is joined in its case to block the release of details by the Clearing House Association, a banking group which includes ABN Amro Bank, Bank of America (BAC), Bank of New York Mellon (BK), Citigroup (C), Deutsche Bank (DB), HSBC Holdings (HBC), JPMorgan Chase (JPM), U.S. Bancorp (USB) and Wells Fargo (WFC), among many others. How much has each of these banks gotten in support from the Fed? If the courts don't force the Fed to open its records, we may never know.

Fed Told AIG to Keep Agreements Secret

In a related case of government secrecy, it was recently revealed that AIG (AIG) was asked to keep secret which of its counterparties were the beneficiaries of the billions in bailout money that firm received. Last week, U.S. Rep. Darrel Issa (R-Calif.) released emails he obtained from the New York Federal Reserve that showed officials at the Fed asked AIG not to disclose key details of their agreements to make big payouts to banks in late 2008. Treasury Secretary Timothy Geithner, who was president of the New York Fed at the time the events took place, contends he was not aware that AIG had been asked to keep that information secret, and says he was not privy to the emails in question. The emails, he points out, were sent after he had recused himself from the workings of the Fed because he was named to be treasury secretary.

Maybe Geithner wasn't involved in these particular emails, but it's hard to believe he didn't know that the details of AIG's bailout were being kept secret. If he opposed the Fed's secrecy, as treasury secretary he had plenty of time to make his view known, and leverage to get the details released. Again, the taxpayers deserve to know: Who benefited from the $62 billion dollars the government gave to AIG so it could pay off on bad bets made by financial institutions on mortgages that went sour.

Financial firms allegedly had such a good year that they are expected to pay bonuses equal to or surpassing payouts of 2007. Why should these firms be able to claim that disclosure of their government loans is such a risk to their survival that they need to hide behind the Federal Reserve's veil of secrecy? Don't stockholders of these firms have the right to know how much they've borrowed before billions are paid out in bonuses? It's worth asking: If they still owe money to the Fed, should they be paying bonuses at this level?
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