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Dec 07 2011

The Fed Strikes Back And Fails

Poor Federal Reserve Chairman Ben Bernanke, he got dissed by Bloomberg News investigation of his $7.7 trillion give away, so he sends a six page complaint (pdf) to Congress. Bloomberg News responded to Ben’s whining with a blow by blow response:

Federal Reserve Chairman Ben S. Bernanke said in a letter to four senior lawmakers today that recent news articles about the central bank’s emergency lending programs contained “egregious errors.”

While Bernanke’s letter and an accompanying four-page staff memo posted on the Fed’s website didn’t mention any news organizations by name, Bloomberg News has published a series of articles this year examining the bailout. The latest, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” appeared Nov. 28.

“Bloomberg stands by its reporting,” said Matthew Winkler, editor-in-chief of Bloomberg News.

Yves Smith weighs in on the “food fight”:

First, it [the Fed] tries the sneaky device of complaining about all the bad press it is getting, and alludes in passing to the latest Bloomberg report (“one last week”). So are we dealing with the general or the specific? The attachment to the letter, which makes a series of specific claims of where the coverage allegedly was off beam, was rebutted with great speed and vigor by Bloomberg. So trying to have it both ways (attacking Bloomberg but trying to depict it as part of general critic wrongheadedness) backfired.

But what is even more striking is the tone and substance of the letter: overreaching words like “egregious,” the patently false claims that there is nothing new in the latest (and by implication, earlier) Bloomberg stories, that the disclosure issues are settled. If there was no new information given to Bloomberg, then why did the Fed fight so hard to prevent the release of information? The Fed has never been cooperative. Even with the Congressional Oversight Panel, the so called Sanders report coming out of Audit the Fed (and remember, the Fed succeeded in lobbying to narrow the scope of Audit the Fed), a new GAO report, the latest Bloomberg FOIA still pried loose more information. The Fed is clearly not interested in transparency, but keeps trying to claims that everything that anyone would want to know is public, and there really is nothing here to discuss any more. [..]

But the biggest lie in this fabric of Big Lies is that the banks were just suffering a wee liquidity crisis in the crisis, not a solvency crisis. If that was true, why did we need a TARP plus making failed credit default swap hedges good via the AIG rescue? In addition, Steve Waldman has described, long form, that bank equity is such an abstraction, in that there is a very high degree of uncertainty in the value of both assets and liabilities, that you need much bigger buffers of equity than anyone now has to properly deem a bank to be solvent […] The regulators determine whether a bank was insolvent. And since no regulator was willing to say a bank was insolvent (although Sheila Bair was clearly close to doing so with Citi), ipso facto, they were all solvent. Nice to have such accommodating people handing out grades.

The most laughable part of the Fed’s defense is the claim that Congress was fully informed about their actions. Really? Not according to Rep. Barnie Frank, former chairman of the House Financial Services Committee, who said “”We didn’t know the specifics.”

It is well past time for Congress to rein in the Fed. Anyone have a toga?

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