The Three-Pronged Attack on the Fed
The more it squirms in secrecy and denial, the more public resentment builds.
The Fed is pulling out all stops to defend its secrets, including publishing self-serving mathematical gibberish. Please consider the St. Louis Fed article on the Social Cost of Transparency.
(Editor's Note: See also, Everything You Need to Know About the Financial Crisis Inquiry Commission.)
Unless you're an academic wonk, you'll be stymied by pages that look like this:
There are 24 pages of such nonsense with titles like:
- 2.2 Private Information and Full Commitment
- 2.3 Private Information and Limited Commitment
- 3.2.1 Decision Making in the Day
- 3.2.2 Decision Making at Night
- 3.2.4 A No-News Economy
Just for good measure, here's the page describing 3.2.4 A No-News Economy:
The article culminates with:
"For an asset economy then, the prescription of 'full transparency' is not generally warranted.
"Approaching the problem under the premise that fuller transparency is always desirable may not be the right place to start."
Hiding Behind Empirical Formulas
The problem is, Bernanke places his complete faith in such gibberish, so much so that he's lost all sense of real-world action by real people. The result is, he can't see a housing bubble that was obvious to anyone using common sense.
Moreover, had Bernanke simply opened his eyes instead of relying on a poor interpretation of an already fatally flawed Taylor Rule, the credit/housing bubble wouldn't have gotten as big as it did, and we might not be discussing the above ridiculous mathematical formulas that supposedly show us the Fed needs to be secretive.
For more on Bernanke's love affair with the Taylor Rule (even though Taylor disputes Bernanke on its usage), please see Taylor, NY Times, Dean Baker Call Out Bernanke.
Appeals Court to Hear Bloomberg's Freedom of Information Suit
Bloomberg has been in a battle with the Fed for two years over the Fed's "unprecedented and highly controversial use" of public money. In August it "won" the lawsuit, but the Fed has appealed.
Please consider Federal Reserve Seeks to Protect US Bailout Secrets.
The US Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion US loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News.
Bloomberg argues that the public has the right to know basic information about the "unprecedented and highly controversial use" of public money. Banks and the Fed warn that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell-off by investors. Disclosure may hamstring the Fed's ability to deal with another crisis, they also argued. The lower court agreed with Bloomberg.
The ruling by the three-judge appeals panel may not come for months and is unlikely to be the final word. The loser may seek a rehearing or appeal to the full appeals court and eventually petition the US Supreme Court, said Anne Weismann, chief lawyer for Citizens for Responsibility and Ethics, a Washington advocacy group that supports Bloomberg's lawsuit.
In her Aug. 24 ruling, US District Judge Loretta Preska in New York said loan records are covered by FOIA and rejected the Fed's claim that their disclosure might harm banks and shareholders. An exception to the statute that protects trade secrets and privileged or confidential financial data didn't apply because there's no proof banks would suffer, she said.
The central bank "speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programs were to be disclosed," Preska, the chief judge of the Manhattan federal court, said in her 47-page ruling. "Conjecture, without evidence of imminent harm, simply fails to meet the board's burden" of proof.
By the time the documents are released, the information may be useless, or not. Regardless, the battle is worth fighting just over the principles of the matter.
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