Fed Refuses to Disclose Recipients of $2 Trillion

Bloomberg reports: "The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information."

Here's what it may be about...

"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez.

The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.

Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.

The Fed hasn't called to ask me, but while I'm waiting for the phone to ring, here's my take.

Look, I don't know if these guys have nefarious intent or not. I doubt it, and I'm not a conspiracy kind of guy anyway, but I do see them making amateurish mistakes. They're acting like completely novice traders, getting whipsawed and not able to execute a decision. I absolutely know I wouldn't trust you with 2 trillion dollars, and I don't think anybody ought to be free to act on my behalf with that kind of money at stake.

Allowing that is negligence. And we're doing it.

So I don't know if what they're doing is good or bad, but it's hard for me to imagine that it could all be that smart, cause I see them making unbelievably amateurish mistakes.

Look at the rule of making the companies insolvent because they can't sell their mortage bonds when the mortgage bonds are mostly still paying their interest. Remember I have lots of mortgage bonds, and they are all paying all the interest. The price has gone down, then it went up, but nothing about those bonds changed at all.

These prices are irrelevant.

I've told you that story about the house next door that couldn't sell, so the bank sends you a letter and says, "We've marked your house down to zero, so we're calling your loan." That's basically what they did to the banks with those illiquid bonds, turning them into "Toxic Assets."

The point here is the guys that are in charge right now don't understand this simple problem. They caused it, and now they're shelling out trillions of dollars to cover up these dumb mistakes.

Let's keep going with the article:

"Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects."

Look, your business is not my business. I have no right to know your secrets. But if you want me to lend you money, you better believe you're going to have to come clean. Now you're telling me I'm too childish to know the truth? Maybe losing confidence in failed institutions is the right thing to do.

If we didn't have news in Iraq, we would never have had the mass loss of confidence in the Rumsfeld strategy, and we never would have had the surge. Keeping the truth from us because we woudn't like it, means not giving us the right to react.

But that's just more of the steady erosion of our rights and freedom. Telling the trust is NOT a "dangerous step" by the Fed.

"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," they wrote.

New York-based Citigroup Inc., which is shrinking its global workforce of 352,000 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn't seek money damages.

Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets.

You all know me, and I am not generally that concerned about public policy. But it's obvious to me these guys are covering up, and this is why I'm telling you the bull market has not started yet. Too much bad news has yet to surface.

“It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed,” Lucy Dalglish said.

The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.

Here's a telling quote from the article: "Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now."

The Bloomberg lawsuit said 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."

In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank's customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.

All they have to do to keep their secrets is not ask us to assume risk on their behalf. This is a giant conspiracy. And a lie.

Now the president was convinced there was an emergency and we would all die if we didn't buy those mortgage bonds. Now the mortgage bonds went up by themselves, and we gave the banks money to buy other banks instead. Now they don't want to tell what they are doing with the money.

Hey. Get the point of all this. I am not saying it's all bad, I'm saying making long term decisions about betting on the health of our economy is a complete crapshoot. You may win, or you may lose. I don't gamble with my family life savings. Do you?

Maybe you do, but you'd better stop.

Now I'm telling you the way you're going to have to relate to all this. Ready?

Get used to it.

I want you to get used to the idea that there really is no U.S. economy that means anything anymore, or a U.S. stock stock market, or a U.S. currency.

Whether you're feeling inspired or discouraged, right now, I can tell you for sure, the world economy is going to be vital, and it's going to grow. Billions of people are going to learn to live like Americans over the next 5 or ten years. And this is gonna be BIG BUSINESS!

You don't want to limit your thinking to one country, even the good ol' US of A.

I'll tell you again, and you can take this to the bank, the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe, comfortable electronic life for their families --- WILL NOT BE DENIED.

The growth is gonna be there, and the people around the world will pay a lot to use our capital. So from now on you can afford to be very, very choosy.

Starting right now, You don't have to invest in uncertain situations. You don't have to try to guess the bottom of anything. Money's already becoming VERY scarce, and you can pick and choose your investments.

I know this isn't the way most of us think. But this is the new world and you can afford to think like this. You can demand that everything be right before you commit.

There's no excuses anymore, you better take the responsibility to evaluate each deal carefully.

You can know the real story about every single thing you invest in, and everybody you loan money to. You can demand only good deals. It's a buyers market for investments now, and it's going to be that way maybe for the rest of your life.