US Appeals Court: Fed Must Disclose Bailout Records
Finally some good news. Even if this doesn’t really change the reality of the situation (The too-big-to-fail banks are still even bigger; they still have an implicit guarantee for unlimited future bailouts; OTC Derivatives are legal, Glass-Stegall is still repealed, insider trading is still legal in commodities, etc.) – this is a much-needed move toward finding out what the Federal Reserve did with its trillions of bailout dollars.
The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.
The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.
On a probably related note, Fed Chief Bernanke has come full circle from declaring that the bailouts were “necessary to stave off a depression” to now calling the situation “unconscionable“. Better late then never, I guess, but it should be clear by this point that if Bernanke truly believed what he said, he would insist on breaking up the big banks, banning the trade of OTC derivatives, and setting up some kind of independent regulatory commission to keep an eye on the banks.
Chris Dodd’s “financial reform bill” attempts to do these things, but only in the way that a corporate wage slave asks his employers for a raise – meekly. This should have been a foregone conclusion seeing that his major campaign contributors are all banks that received bailouts, but I suppose I was foolish enough to hope he’d sponsor a bill with some teeth. His bill incorporates none of the elements which many major economists say are minimum standards for serious reform, and worst of all, leaves oversight up to the Federal Reserve, not an independent commission.
Now, if there is one thing this crisis can be said to have taught us, it is that the Federal Reserve is not a credible or trustworthy judge of the ethics of modern banking practices. The whole time our major banks were engaging in predatory lending practices, fraudulent accounting, reckless gambling and insider trading, the Fed had nothing to say about it. They even encouraged such behavior by keeping interest rates low and making repeated pronouncements that “there is no housing bubble“, “the sub-prime mess is contained“, and that deregulating the derivatives market is somehow a good idea. The Federal Reserve is the last body I want to see regulating the banks, and they have shown themselves to be utterly incapable of doing so. It would be like asking President Bush to oversee an academic committee.
It will be interesting to see what comes out of this new ruling. As I write, I’m sure dozens of news organizations are busy setting their Freedom of Information Act requests to work. Will we see a heretofore unacknowledged bank revealed to have accepted a bailout? I’m sure many would like to see the minutes of the meeting where Lehman Brothers’ fate was decided. How much money did Bank of America run off with, and what were the real terms of its purchase of Merrill Lynch? All that and more, hopefully soon to come!