Bloomberg: Federal Reserve Defies Transparency Aim in Refusal to Disclose

Sometimes when I read these stories, I have to wonder what country I am in. The things we're seeing are simply unbelievable - a government run amok.

• The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
• 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 latter is because if we knew, we'd be scared at what we were getting in return for our tax dollars - a bunch of toxic waste)
• ``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. ``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''
• Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure. (go Bloomberg)
• 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. (Atlas Shoulders!)
• Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. (ratings? Much of the junk going bad was rated triple A - can you imagine how bad the stuff is we are accepting now?)
• ``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.'' (lies. lies. lies.)
• Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors
• ``I talk to Geithner and he was pretty sure that they're OK,'' said Barney Frank, a Massachusetts Democrat. ``If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' Such losses would be acceptable, he said, if the program helps revive the economy. (huh?? So on Nov 6th losses would be regrettable but when you sold it to the American people we were told we'd have a great chance of making money as long as we held the toxic junk long enough)
• Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic. (??????? so we don't want people to see the price of things?? Why is that? It seems to work in all other parts of the economy)
• Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc. ``I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. ``That would unclog the market very quickly.'' (actually, because they are most likely overpaying by a huge amount to help the banks out - you'd probably just chuckle and or get outraged at the prices American taxpayers are paying for junk. But if you keep it a secret you can just assure us that "we'll make money in the long run". Then in 4-5 years when Americans have moved on to the next Paris Hilton escapade you can quietly sell off the assets for huge losses - not that this is a cynical take or anything)
• Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. (I say, just change the rules - I mean that's what we've done with everything else - why stop now?) Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury. (so we hold the junk for the banks for X amount of time; then when the value is so egregiously bad we "give" it back to the banks, they mark it down - but then we give them money to offset the mark down. Sounds reasonable!!)
• Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.
• The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves.

Seriously - I could not make this stuff up with a very vivid imagination. Amazing. I feel like black helicopters should be coming any moment now.