Capital Markets

Bailout Transparency: Not So Much

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Nick Gillespie noted earlier today the escalating costs of D.C.'s bailout bonanza.

Just as troubling are early signs that the government has no interest in disclosing to taxpayers how it's spending the money.

Bloomberg reports:

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

 […]

The Bloomberg lawsuit argues that 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."

The Fed has lent at least $81 billion to American International Group Inc., the world's largest insurer, so that it can pay obligations to banks. AIG today said it received an expanded government rescue package valued at more than $150 billion.

The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.

"As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to," said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.

[…]

The Fed's collateral "absolutely should be made public," said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves. 

Back in September, I warned that no matter how bad the behavior on Wall Street, it's laughable to think the debt-saddled, asset-hiding federal government has the wherewithal to properly identify and fix the problem.

Prior posts on bailout transparency here and here.

NEXT: The Corporation and the State

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  1. You mean they were lying about the transparency?

    Well, at least it’s only $2 trillion.

  2. Have they officially announced Jeffrey “Our balance sheet is as clean as a whistle!” Skilling as bailer-outer-in-chief? This shit is right up his alley.

  3. If there was somehow an opposition part in charge of congress that practiced oversight this shit wouldn’t happen. I say we vote the Republicans out and get some Dem leadership on Capitol Hill.

    They’d never have passed on giving a blank check to the Treasury Secretary and would be hauling administration officials before congressional committees to testify* under oath.

    * I apologize for that blantantly sexist verb.

  4. Sigh, if only large banks had some way of getting money on their own. You know, some method for convincing people to put their money in the bank. Maybe they could, I don’t know, offer to pay some sort of rent for the use of the money. They could give depositors a rent equal to a percentage of the deposited money. They could always raise that percentage if they needed to encourage people to deposit even more money. Nah. Why bother with all that when they can just beg congress and stick future generations with the bill.

  5. Why would they do that jtuf, when they can get all the money they want just by asking for it?

  6. I’m shocked–SHOCKED!!!–to hear that the rats may be looting the ship right before it sinks.

  7. “Have they officially announced Jeffrey “Our balance sheet is as clean as a whistle!” Skilling as bailer-outer-in-chief? This shit is right up his alley.”

    Indeed they have. From a related article on the latest AIG bailout (yes, they’ve already burned through the initial $85 bil we threw them all of a month ago).

    “The New York Fed will lend a combined $52.5 billion to two limited-liability companies that will buy residential mortgage-backed securities and collateralized debt obligations that were guaranteed by AIG.”

    We are using Mr. Skillings methods exactly – put all debt into LLC’s that are “off the books” to hide/obfuscate/whatever said debt. Prediction: these LLC’s will never sell anything, simply exist to park debt into to make it seem like the bailout has worked. Amazing.

  8. J sub D,

    You could have just used the gender-neutral genitalify instead.

  9. Freedom is slavery
    War is peace
    Ignorance is bliss

    Opacity is Transparency

  10. Country going down the toilet. As part of transition, Obama will buy the new blue water fresheners.

  11. I don’t see why people are worried about this.
    It’s only worthless dollars they are handing out, not something of value.

  12. THE URKOBOLD PREFERS THE ENGENDERING TERMS, “BOOBSIFY” AND “TITSTIFY.”

  13. Obama’s going to put every bit of government information up on the web. I heard him say so on the radio this morning. Well, OK, maybe, you know, he didn’t say anything specifically about full disclosure of who’s getting bailout money, but I’m sure that he will. Won’t he?

  14. Finally, we’ll get to know the truth about the fake moonlandings, and Area 51.

  15. Malto,

    They should just start telling the truth about everything. The government “brand” has been so seriously damaged, no one would believe them anyway.

    “Watch out! He’s got his probe!”

  16. They won’t tell the truth.

    Think we will get two false flag attacks under obama that are as big as the 93 WTC and the OKC bombing?

    http://www.youtube.com/watch?v=99Yqz_SHcXc

    this one is good too:

    http://www.youtube.com/watch?v=JKvkhe3rqtc

  17. Obama’s going to put every bit of government information up on the web.

    He’s going to commit a global denial-of-service attack?

  18. We are in lender of last resort mode here – what do you people expect the Fed to do? Expose it’s counter parties to attacks on their portfolios? Sometime less transparency is better – I think this is one of those times. The information Bloomberg is suing to access is routine information which is never-the-less sensitive. These transactions occur under normal regimes, though to a lesser extent. This smells like a politically motivated smash and grab dreamed up by Mayor-for-life Mike.

  19. The government has this all under control. We shouldn’t worry about it.

    We need to worry about the sanctity of marriage. If gay people are allowed to marry, Jesus won’t be happy….

  20. Wait a minute, if everything were run by plutocrats, where would the transparency be? Couldn’t the private owners of everything tell us the shove transparency? I mean they’d be the owners, so they could disclose or not disclose whatever they fucking well wanted to. Am I missing something?

  21. “Am I missing something?”

    Well aside from the minor detail of Plutocrats only getting your money if you give it to them, whereas the government can just take it from you whenever they want, no.

  22. Wait a minute, if everything were run by plutocrats…

    Roderick Long (see The Corporation and the State article) was just talking about this. Nice (wrong) characterization, Lefiti.

  23. Aha, so it’s gauaranteed that the plutocrats will be nice. I see.

  24. Okay, boys and girls, here’s your fairytale to tonight:

    In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. The streets would be made of chocolate and money would fall from trees!

    Go to sleep now. Pleasant dreams!

  25. You don’t have to give your money to any private entity that you don’t think is “nice” enough.

    Unless the government takes it from you and secretly distributes it however they like.

    Very confusing, I know.

  26. We are in lender of last resort mode here – what do you people expect the Fed to do?

    I expect the Fed (the aforementioned lender of last resort) to keep doing what it has been doing: Creating trillions of dollars, and handing them out to politically well connected institutions, usually via the Treasury. In exchange, the Treasury will issue bonds to the Fed, with the interest and principal payable by the taxpayers.

    The question is: Has this lending reached the point where, no matter how the economy may grow in the future, the taxpayers cannot service this debt? If so, the government will either: 1) formally default on its debt, or 2) be forced to enter a hyperinflationary cycle of borrowing ever more newly created dollars to keep current on the interest payments on the rolled over debt.

    What do you think the Fed will do?

    They should just start telling the truth about everything. The government “brand” has been so seriously damaged, no one would believe them anyway.

    Which is where I’m at at this point.

  27. In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. The streets would be made of chocolate and money would fall from trees!

    You know why this is funny? Because it’s just what we believe, and so its true.

    I applaud you for skewering us so deftly!

  28. The Mafia is a private entity. Try not paying the Mafia.

  29. The Mafia is a private entity. Try not paying the Mafia.

    So is the Federal Reserve Bank.

  30. Actually, the LLCs will on the b.s. list of the Federal Reserve, as two other ones are already there: http://www.federalreserve.gov/releases/h41/Current/

  31. Government is entirely alien to human psychology, of course. Left to our own devices, we humans would never organize everything into a hierarchy. Wehre does government come from again? Mars?

  32. Wehre does government come from again?

    From that primitive part of the human psyche that lusts after the power to force everyone else to do your bidding.

  33. Troll feeding is a crime, and punishment of troll feeders is a legitimate function of government.

  34. The only difference between you libertarians and Bible thumpers is the Bible.

  35. WRONG AGAIN, EDWARD! ANOTHER DIFFERENCE IS THAT LIBERTARIANS DON’T BURN HERETICS. NOT YET, ANYWAY.

  36. The only difference between you libertarians and Bible thumpers is the Bible.

    The only difference between you lefitists and Bible thumpers is the Bible.

  37. The only difference between lefiti and Bible thumpers is “Bible t”.

  38. So this was just a ruse?

    http://www.state.gov/m/a/ips/

  39. “THE URKOBOLD PREFERS THE ENGENDERING TERMS, “BOOBSIFY” AND “TITSTIFY.””

    BUT I MAY BE COMPENSATING FOR MY GAYNESS.

  40. GOOD, EDWARD, GOOD! LET YOUR ANGER FLOW THROUGH YOU INTO YOUR SWEATY LITTLE FINGERS AS THEY TYPE AWAY.

  41. Okay, boys and girls, here’s your fairytale to tonight:

    In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. The streets would be made of chocolate and money would fall from trees!

    First, read about economics. Then we can discuss why you’re wrong on all counts. Just for starters, in a free market wages would not be higher [higher compared to what] – I leave that one to you to figure out.

  42. The question is: Has this lending reached the point where, no matter how the economy may grow in the future, the taxpayers cannot service this debt? If so, the government will either: 1) formally default on its debt, or 2) be forced to enter a hyperinflationary cycle of borrowing ever more newly created dollars to keep current on the interest payments on the rolled over debt.

    What do you think the Fed will do?

    It HAS come to that point:

    http://market-ticker.org/uploads/debt-contribution.jpg

  43. Yes, I know. But people trust more facts that they look up themselves.

  44. Neu, from the California Teachers Association website: “CTA and its chapters represent nearly 95 percent of the state’s public school teachers and other non-supervisory, certificated personnel.”

    http://www.cta.org/about/who/CTA+Today.htm

  45. Francisco:

    Here’s the link you gave, hyperlinked:

    Debt Zero-Hour Graph

    Collectively, the federal government has maxed out our credit cards, and we are paying them off with more borrowing. The Federal Reserve is our creditor.

  46. Debt Zero-Hour Graph

    Well, fuck. Thanks for making me really depressed.

  47. “Americans have no idea where their money is going or what securities the banks are pledging in return”.

    Actually I think we all have a pretty good idea what kind of securities the banks are pledging in return.

  48. Debt Zero-Hour Graph

    Well, fuck. Thanks for making me really depressed.

    The graph goes to 2015 but everyone knows the world’s going to end in 2012, so it shouldn’t worry you.

  49. Aw, f***. American Express just became a bank. Why?

    “Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced or may introduce to support U.S. financial institutions,” said Chief Executive Kenneth Chenault in a statement.

    http://money.cnn.com/2008/11/10/news/companies/amex/index.htm?postversion=2008111019

    Welcome to the corporate caretaker state.

  50. The national debt is about 5 trillion. (These bailouts are increasing it by another trillion or two.) There is another 5 trillion held by other parts of the government, chiefly Social Security. That will all be sold off as the boomers retire. So, over the next 30 years, the full 10 trillion will be outstanding. A year ago, about 1 trillion was held by the Fed. But the Fed has sold about half of that off.

    If this years budget deifict is projected into the future, the resulting national debt would be unsustainable. But that doesn’t have to happen.

    The problem remains that social security benefits can only be paid with large tax increases. And medicare benefits could easily take up all of GDP if “money is no object, health care is a right of the elderly” is taken seriously. Of course, the government is already saying one thing and doing another on that account.

    One possible scenario is that government will
    attempt to meet its obligations for entitlements like medicare, be unable to raise taxes enough, and then default on the explicit national debt before it bites the bullet.

    It remains posssible, but the U.S. is not near the point of no return. Entitlements can be changed at any time. Look at Europe and you can see how much higher taxes can go.

    In the late seventies, many libertarians argued that hyperinflation was inevitible. This was because, supposedly, politicians would never accept higher unemployment. In fact, the Volker Fed started the process that greatly reduced inflation and the Reagan admiistration accepted unemployment at a rate of nearly 11%.

    Also, during that period, social security taxes were greatly increased–phased in during the eighties.

    I really don’t see it as too difficult for the government to control health care costs by making sure that expensive new treatments remain perpetually “experimental” and so, not
    paid for by the federal government (or any other insurance.)

    I don’t think the sky is falling. Yet.

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