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Keeping secrets from the people

Scott Jagow Jan 12, 2010

The government is going to great lengths to prevent certain information from reaching the public — information about the taxpayer-funded bailouts of financial companies.

In one case, the Federal Reserve has asked an appeals court to overturn a ruling in favor of Bloomberg. The lower court said the Fed should be required to hand over documents that reveal the identities of financial firms rescued by the Fed’s $2 trillion loan program. More:

Bloomberg argued 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.

That’s a difficult argument to buy. First of all, aren’t we way past the point of this information causing a run? Don’t we already know who these banks are? Bloomberg asked for this information a long time ago. Secondly, the Fed’s ability to deal with another crisis is hampered by the Fed’s inability to tell us how it dealt with the first crisis.

There’s another situation, too. It didn’t get much attention at the time, but it turns out that last year, the SEC approved a request by AIG to keep certain things secret about AIG’s payback to banks:

In May, the SEC approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most controversial aspect of the AIG bailout: the funneling of tens of billions of dollars to big banks like Societe Generale, Goldman Sachs, Deutsche Bank and Merrill Lynch.

The SEC’s Division of Corporation Finance, in granting AIG’s request for confidential treatment, said the “excluded information” will not be made public until Nov. 25, 2018…

So, right around the time you’re having Thanksgiving dinner on a space station orbiting the earth, we’ll find out what really happened that day in 2008 when AIG made the banks whole.

In a typical year, the SEC receives 1,500 requests from U.S. companies for confidential treatment for portions of regulatory filing, said Nestor. The agency grants those requests, “all or in part,” 95 percent of the time, he said.

Is that considered an example of the government’s new transparency?

Meanwhile, Treasury Secretary Tim Geithner may have to testify before Congress next week about allegations of a cover-up while he was at the New York Fed. From Daily Finance:

… the taxpayers deserve to know: Who benefited from the $62 billion dollars the government gave to AIG so it could pay off on bad bets made by financial institutions on mortgages that went sour?

Financial firms allegedly had such a good year that they are expected to pay bonuses equal to or surpassing payouts of 2007. Why should these firms be able to claim that disclosure of their government loans is such a risk to their survival that they need to hide behind the Federal Reserve’s veil of secrecy? Don’t stockholders of these firms have the right to know how much they’ve borrowed before billions are paid out in bonuses?

UPDATE: This just in from Bloomberg:

Edolphus Towns, chairman of the House Oversight and Government Reform Committee, said he will issue today a subpoena to the Federal Reserve Bank of New York for documents related to American International Group Inc.

“This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout,” Towns said in an e-mailed statement.

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