Remember the economic bailout that was supposed to head off the next Great Depression through an injection of $2 trillion in cash and loan guarantees? Do you know where your money is going? Neither do I, and apparently, that’s the way the Federal Reserve want to keep it.
According to Bloomberg:
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
“The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.”
Apparently, the $700 billion bailout approved by Congress â€” with certain safeguards â€” is only a drop in the bucket of what the Fed really has access to. And most of the dough the Fed is doling out is being distributed through programs that are not approved or overseen by Congress.
But really, what kind of money are we talking about here?
The Fed’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan — without safeguards put into the TARP legislation by Congress.
Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds.
In scenes reminiscent of how the Bush administration justified spying on U.S. citizens for our protection, both Paulson and Bernanke seem to be invoking the word transparency way more often than they are practicing it:
At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.
“We need oversight,” Paulson told lawmakers. “We need protection. We need transparency. I want it. We all want it.”
At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. “Transparency is a big issue,” he said.
Right. Well Bloomberg has filed a federal lawsuit under the Freedom of Information Act to force the Fed to reveal the deals. And I bet we’re not going to like what we see when they lift that curtain ….