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Bloomberg Steps Up

Wire service sues Fed for bailout transparency
November 7, 2008 By Dean Starkman

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This story crossed Bloomberg’s wire just before noon today:

BLOOMBERG NEWS SUES FED TO FORCE DISCLOSURE OF LOAN COLLATERAL

There’s not much to say but “Go Bloomberg” as the thundering herd of financial news files suit against the Federal Reserve to force disclosure of basic information about the financial bailout.

I don’t have a link available but here are some excerpts:

By Mark Pittman
Nov. 7 (Bloomberg) — Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks. The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn’t seek money damages.

It should be made clear that this lawsuit deals with the main aspects of the bailout—government loans to financial institutions. Bloomberg, quite rightly, wants to know what kind of collateral the government is getting in return. It is stunning to think that taxpayers don’t get to know what kind of collateral they are getting on loans they’re forced to make, but that’s how it is, hence the need for this lawsuit.

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I would also point out that the news account of the suit (I haven’t seen the actual suit yet) doesn’t mention the bailout of American International Group, a very special case. In recent posts, we’ve decried the fact that, according to news accounts, government loans to AIG have been passed directly to AIG’s insurance customers, Wall Street banks and other institutions, the identity of which, unbelievably, remains secret.

We hope a second suit on AIG comes soon.

For now, we can only applaud the public spiritedness and, it must be said, guts, of Bloomberg and its top editor, Matt Winkler:

“The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry,” said Matthew Winkler, the editor-in-chief of Bloomberg News, a unit of New York-based Bloomberg LP, in an e-mail.

At this point, there can be no doubt: Bloomberg gets the picture. The expenditure of public funds is a basic, core function of government. The public’s right to know here is axiomatic.

Here are additional details:

The Fed has lent $1.5 trillion to banks, including Citigroup Inc. and Goldman Sachs Group Inc., through programs such as its discount window, the Primary Dealer Credit Facility and the Term Securities Lending Facility. Collateral is an asset pledged to a lender in the event that a loan payment isn’t made.

The Fed made the loans under 11 programs in response to the biggest financial crisis since the Great Depression. The total doesn’t include an additional $700 billion approved by Congress in a bailout package.

It’s also to Bloomberg’s credit that it has been in pursuit of these very basic records since the spring:

Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply.

Here’s the Fed’s position:

The Fed planned to deny Bloomberg’s request under an exemption protecting “confidential commercial information,” according to Alison Thro, the Fed’s FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn’t subject to the freedom of information law.

“This type of information is considered highly sensitive, and it would remain so for some time in the future,” Thro said.

I’d also note that the author of the news story, Mark Pittman, also broke other, massive bailout stories.

I highly recommend reading those links. More later.

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Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.