The Fed Refuses to Disclose Who Is Getting Loans and What It's Accepting as Collateral

While he was at Congress two months ago begging for a hand-out, Secretary Paulson announced that transparency was needed in Fed rescue efforts and promised that he wanted to provide that transparency. Now the Fed is fighting a FOIA request for disclosure of the identity of emergency loan recipients and their collateral.

Taxpayers deserve to know where their money is going and what is being done to safeguard it. Emergency loans are supposed to be paid back with interest. The Fed isn't supposed to be offering money to banks without adequate collateral. Unfortunately, in September the Fed announced wider standards to accept less-than-top-rated assets as collateral.

The banks accepting emergency loans would like to keep it a secret because disclosure might give investors reason to doubt their financial soundness. Some would argue that's the point.

In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury Secretary.

"I talk to Geithner and he was pretty sure that they're OK," said Frank, a Massachusetts Democrat. "If the risk is that the Fed takes a little bit of a haircut, well that's regrettable." Such losses would be acceptable, he said, if the program helps revive the economy.

Frank said the Fed shouldn't reveal the assets it holds or how it values them because of "delicacy with respect to pricing." He said such disclosure would "give people clues to what your pricing is and what they might be able to sell us and what your estimates are." He wouldn't say why he thought that information would be problematic.

In fact, investors and taxpayers deserve to know how shaky their investments in banks are so they can take appropriate action to protect themselves. Not knowing which banks are solvent and which are teetering on bankruptcy is a large part of the credit panic. By covertly propping up failing banks, the Fed is prolonging the financial crisis.

posted by Gabriel Malor at 10:46 AM

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