Federal Reserve Loses Lawsuit; Will Have to Divulge Loan Recipients

Brian Doherty | August 25, 2009

The "audit the Fed" bill hasn't passed yet, but the courts are already striking blows for Federal Reserve transparency, as reported by Bloomberg, about a lawsuit filed by Bloomberg:

The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit.

Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.....

The judge said the central bank “improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs....

Bloomberg said in the suit that U.S. taxpayers need to know the terms of Fed lending because the public became an “involuntary investor” in the nation’s banks as the financial crisis deepened and the government began shoring up companies with capital injections and loans.....“When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know,” said Matthew Winkler, the editor-in-chief of Bloomberg News. “We’re gratified the court is defending the public’s right to know what is being done in the public interest.”

Federal Reserve chief Ben Bernanke may be keeping his job, as Tim Cavanaugh blogged below, but looks like he'll have to do it with a little more openness to we, the people, and thank you Judge Preska. The Fed has not yet said whether it intends to appeal.

Comments

hmm|8.25.09 @ 10:54AM|#

That'll teach them to shred more.

Geoff|8.25.09 @ 10:55AM|#

Sounds like a great time to appoint the New York State AFL-CIO president, Denis Hughes, to chair the New York Federal Reserve on a permanent basis.

Michael|8.25.09 @ 11:06AM|#

Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren't covered by the law because their disclosure would harm borrowers' competitive positions.

Damn, what a fine argument. MLB should use this defense whenever their players are taken to task over steroid allegations.

|8.25.09 @ 11:18AM|#

Good News if it actually happens. Now if we could just get that Fed Transparency Bill thru Congress with enough votes to override Obama's Veto.

Hell will freeze over before this happens though.

Elemenope|8.25.09 @ 11:20AM|#

Now if we could just get that Fed Transparency Bill thru Congress with enough votes to override Obama's Veto.

Has he threatened to veto, or is this part of some conspiracy theory of yours?

|8.25.09 @ 11:28AM|#

Yo, fuck the FED

The Libertarian Guy|8.25.09 @ 12:10PM|#

El, it just sounds like the kind of thing Obama would veto. Sometimes, there's no need for a conspiracy theory.

Fluffy|8.25.09 @ 12:10PM|#

Isn't the Fed specifically tasked by law with maintaining public confidence in the banking system?

If they've been given that duty, that means that during time periods when the banking system is not sound, they are tasked with engaging in deliberate deception and fraud.

If I am CEO Douchebag of Douchebag Savings and Loan, and my bank is not sound, but I go in front of the news cameras and say, "My bank is perfectly sound, have no fear everybody!" I have committed a crime.

If I am Helicopter Ben and I know Douchebag Savings and Loan is not sound, but I consider it "too big to fail", if I go in front of the news cameras and lie and say, "Douchebag Savings and Loan is perfectly sound, have no fear everybody!" Krugman and his ilk will write laudatory columns about how I saved civilization.

How about we reform the system so that EVERYBODY has to tell the truth? And if everybody telling the truth would mean that the banking system would fail, how about we reform the system so that's no longer the case?

Lee Cruz|8.25.09 @ 12:38PM|#

That's exactly why this information will never be divulged. Very rich people would be very quick to pull their very large deposits out of unsound institutions, of which there are over 3000 "zombie banks." This not only creates a bank run but destroys their future ability to create money because of the ratio of reserves to current oustanding loans.

Hugh Akston|8.25.09 @ 12:54PM|#

I assume that any release of this information will be heavily redacted. For the public good, don't you know?

|8.25.09 @ 3:24PM|#

How about we reform the system so that EVERYBODY has to tell the truth? And if everybody telling the truth would mean that the banking system would fail, how about we reform the system so that's no longer the case?

That reform would consist of: 1) Returning to a gold or siiver backed money, instead of fiat currency, and 2) Outlawing fractional reserve banking.

The way to accomplish such a reform is: 1) Repeal the Legal Tender Laws, which force everyone to use Federal Reserve Notes as legal tender, and 2) Actually enforce laws against fraud in banking.

The fundamental lies behind the banking and economic crisis are 1) The dollar has value, and 2) Your dollars on deposit at your bank are actually there (90% of them have been lent out to others at interest).

In other words, out entire banking system is built on naked shorting. The crisis comes as people discover the fraud and call in their loans.

|8.25.09 @ 3:56PM|#

That's exactly why this information will never be divulged. Very rich people would be very quick to pull their very large deposits out of unsound institutions,

We can't have people taking their money out of unsound banks, now, can we?

|8.25.09 @ 4:33PM|#

Malto, that's been the case since the Industrial Revolution began picking up steam. You don't want to go back to a world without fractional reserve banking.

Fluffy|8.25.09 @ 4:49PM|#

Malto:

It's not fraud if I tell you that I am operating a fractional reserve bank.

To make fractional reserve banking illegal, you would have to make it illegal for me to simultaneously have creditors [people I owe money to] and debtors [people who owe money to me]. That doesn't sound very libertarian to me.

Bank depositors are just creditors of the bank. I don't have any problem with that.

tarran|8.25.09 @ 5:02PM|#

To add to the anti-Rothbard chorus about outlawing fractional reserve banking:

Free banking will generally keep the lending down to reasonable amounts. It's not like all the banks fall like dominoes. The weak ones collapse and their depositors move what remains to the stronger banks shoring up their reserves.

Free competition in currencies would also moderate the boom bust cycles as well.

|8.25.09 @ 7:37PM|#

Very rich people would be very quick to pull their very large deposits out of unsound institutions

Very rich people unwind their positions carefully (assuming its legal). Its the poor to middle class that will clean out their accounts in a swoop, which is why the FDIC was created.

anonymous|8.25.09 @ 9:31PM|#

"The fundamental lies behind the banking and economic crisis are 1) The dollar has value, and 2) Your dollars on deposit at your bank are actually there (90% of them have been lent out to others at interest).

In other words, out entire banking system is built on naked shorting. The crisis comes as people discover the fraud and call in their loans."

Wait, you mean they aren't just taking my dollars and putting them in a giant underground vault and giving me money every month to let them keep it there?

NOOOOO! I've been defrauded!

abct|8.26.09 @ 3:13AM|#

It's not fraud if I tell you that I am operating a fractional reserve bank.

but they don't. It's always "understood" as in.. all banks do it, so no need to even put it in the multi-page, small type contract.

If on opening an account you were told "you can choose between total availability of your money at any time, unless all the others we've promised the same thing to ask for it at the same time" or "you agree to not take your money out in 6 months, but we pay you for this and we guarantee it'll be there when you come for it"... people would think twice.

ray|8.26.09 @ 3:26AM|#

FRB would be fraud if done by any other business, however banks have been given a legal exemption... that is a government mandated privilege. Of course originally it was fraud, not just in theory but in practice... and some bank runs (specially of the smaller, less politically connected bankers) actually ended up in court...

ray|8.26.09 @ 3:34AM|#

Any FRB, without a lender of last resort (in our case the Fed) is 100% guaranteed to be unable to meet its obligations eventually. (normally the biggest ponzi schemes do not last more than 10yrs).

Any business operating under such a business model would be considered fraudulent.

of course once the FED comes into play, the whole thing is a govt. run cartel and as we all know the law is only for us subjects so...

|8.29.09 @ 11:38AM|#

OUR HUMAN NATURE IS WANTING TO NOT BELIEVE! That any fellow men could conspire so willfully against our right to the pursuit of happiness. We watch our rights erode, and opportunities to fast pursue a path to happiness and prosperity, fade into the dark reality of hopelessness. It is only in amazement, we concur that there are those that would conspire to deny these things that we say are our reasons to live. In astonishment we now realize that we will have to face this truth! KenH.