Archive for the ‘FOIA’ Category
The Fed allegedly released the data that was the center of a long FOIA lawsuit fight yesterday. I could easily make the argument that they did so in a fashion that was intended to frustrate a rational examination by handing everything over in PDFs without an index or in any sort of machine-digestible form. There were also quite a few things missing that I would have expected to see included.
What became immediately clear with the data release was why The Fed didn’t want this out.
What you’re getting here is my “first look” – a look that should be much more detailed but isn’t, simply because of the intentional attempt to keep people from easily analyzing the material. More analysis will come over time, and many are looking at the information and trying to import it into something that is easily manipulated and examined (such as Excel); for now, this will have to do.
There was an awful lot of hand-waving by various large banks, if you remember, that they didn’t “need” any of these programs. And yet we find a curious mixture of large banks that actually did use these programs, including JP Morgan’s over-representation in the ABCP program itself. For firms that claimed, in public, that they needed no help, this is rather curious is it not?
Then there’s Goldman Sachs, which claimed under oath to the FCIC that:
“we used it one night at the request of the Fed to make sure our systems were linked with their systems, and it was for a de minimis amount of money.” Peter J. Wallison, a member of the Financial Crisis Inquiry Commission, then asked, “you never had to use it after that?”
“No, and as I said, we used it on the Fed’s request,” Cohn replied.
The data says otherwise – Goldman in fact hit the window five times, not once. Isn’t it a crime to make a false statement under oath?
Was the amount borrowed in this case large? No. But that wasn’t the question – it was very specific in that Goldman stated they only hit the window once – period. Again, the data says otherwise.
Dexia, a large conglomerate and foreign entity, hit the window several times. We’ve known that our Federal Reserve propped up foreign companies. Now we have the amounts of that “propping up”, and they’re popping – eye-popping, that is.
There are other deeply troubling facts in this release. Among them are the fact that The Fed apparently accepted more than $100 billion in defaulted bonds and stocks as “collateral.”
Common stocks? Yeah. Where’s that permitted in The Fed’s charter? Well, that’s open to some question. So is accepting defaulted debt. The black-letter of the law requires that all lending be “fully collateralized.” But it appears that the “fourth mandate” – the one The Fed arrogated to itself, that is, to make the stock market go up, despite having zero legal authority to do so - may have come directly and indirectly from this set of decisions.
The problem with this set of “decisions” is that we have zero transparency on the actual haircuts given, other than the generic data we got before. Knowing now that defaulted debt and common equities were part of the mix, it’s rather clear that The Fed was breaking the law which requires that sufficient overcollateralization exist for all loans made by The Fed such that every loan remains fully secured in every case.
That, in turn, means that The Fed was in fact taking market risk in its lending, and that is, as a matter of black-letter law, a prohibited act.
The Fed is prohibited by law from taking market risk because it is able to take actions, without any review and few legal constraints, that can cause the price of assets to rise or fall pretty much at will. It thus has the ability to do that which others cannot without going to prison – manipulate the markets. By doing so The Fed would be put in the position of not only choosing winners and losers, but conspiring with others to provide them with unearned gains not as a consequence of their decisions but rather as a consequence of inside dealing and privileged information. This is unlawful for private industry and individuals to engage in, but it is inherently part of monetary policy.
The Fed as a matter of charter has no mandate nor authority to intervene in the price of equities. Yet Bernanke has made clear that one goal of his policies over the last three years has been to make the price of stocks go up. Now we know where the motivation originally came from to do that – The Fed was, at the time, holding “collateral” that was subject to stock market risk.
These actions were an unprecedented usurpation of authority by what is supposed to be a strictly-limited monetary body. You can argue the purity of motive all you want, but the fact remains that there is nothing in The Fed’s charter that permits them to lend against anything other than fully-secured collateral.
At the time Section 13.3 read:
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.
Common stocks and defaulted bonds are not, by any reasonable definition, secured collateral.
I’ll likely have more on this as I explore further, but this much is clear: The Fed radically stretched the law in terms of what it is permitted to do, and there’s a pretty clear argument that some of these programs, particularly those where collateral included equities and defaulted bonds, exceeded that lawful authority.
In addition a response to an FOIA request is supposed to include everything that is responsive. How this could be considered sufficient is beyond me – as just one example there’s no specific identification of what the collateral was or how it was valued for these various loans, leading one to believe that either (1) The Fed intentionally did not disclose everything called for by the Court or (2) they literally did not know what stocks made up “Common Stocks” and what bonds made up “Defaulted Bonds.”
If the believe the latter I have a bridge for sale in Brooklyn at a very-attractive price.
Supreme Court Gives Fed 5 Days to Release Emergency Bank Loan Details; An Important Step in the Right Direction
In a rare victory for common sense, the Supreme Court has rejected appeals by banks and the Fed that disclosure of the emergency loans by the Fed to various banks in 2008 were “trade secretes”. The court gave the Fed 5 days to release the information.
Please consider Fed Must Release Loan Data as High Court Rejects Appeal
The Federal Reserve will disclose details of emergency loans it made to banks in 2008, after the U.S. Supreme Court rejected an industry appeal that aimed to shield the records from public view.
“The board will fully comply with the court’s decision and is preparing to make the information available,” said David Skidmore, a spokesman for the Fed.
The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed’s unprecedented $3.5 trillion effort to stem the 2008 financial panic.
“I can’t recall that the Fed was ever sued and forced to release information” in its 98-year history, said Allan H. Meltzer, the author of three books on the U.S central bank and a professor at Carnegie Mellon University in Pittsburgh.
Under the trial judge’s order, the Fed must reveal 231 pages of documents related to borrowers in April and May 2008, along with loan amounts. News Corp. (NWSA)’s Fox News is pressing a bid for 6,186 pages of similar information on loans made from August 2007 to November 2008.
The records were originally requested under FOIA, which allows citizens access to government papers, by the late Bloomberg News reporter Mark Pittman.
As a financial crisis developed in 2007, “The Federal Reserve forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny,” said Matthew Winkler, editor in chief of Bloomberg News. “The Fed must be accountable to Congress, especially in disclosing what it does with the people’s money.”
The Clearing House Association contended that Bloomberg is seeking an unprecedented disclosure that might dissuade banks from accepting emergency loans in the future.
Bloomberg initially requested similar information for aid recipients under three other Fed emergency programs. The central bank released details for those facilities and others in December, after Congress required disclosure through the Dodd- Frank law.
The New York-based Clearing House Association, which has processed payments among banks since 1853, includes Bank of America NA, Bank of New York Mellon, Citibank NA, Deutsche Bank Trust Co. Americas, HSBC Bank USA NA, JPMorgan Chase Bank NA, U.S. Bank NA and Wells Fargo Bank NA.
In trying to shield the documents from disclosure, the Clearing House invoked a FOIA exemption that covers trade secrets and commercial or financial information obtained from a person and privileged or confidential.”
The cases are Clearing House Association v. Bloomberg, 10- 543, and Clearing House Association v. Fox News Network, 10-660.
Information-Wise, a Big Yawn
The argument that information represents “trade secrets” is of course preposterous, as is the idea that “disclosure that might dissuade banks from accepting emergency loans in the future”. If banks need money to survive, they will take it.
We will know soon enough, but I expect the information to be a big yawn. We will see some loan amounts and names but everyone knows the names anyway. Perhaps there will be some excitement over loans to foreign banks.
Important Step in the Right Direction
Whatever excitement there is, will last all of a day. However, this was an important step in the right direction, that removes some unwarranted secrecy at the Fed.
The Fed hides behind a cloak of secrecy, doing what they want, when they want, with no disclosure, and no accountability to anyone.
Five Steps to Eliminate the Fed
The first step is a full disclosure of what happened. The second step is a full and complete audit. The third step is a plan to phase out the the Fed. The fourth step is Congressional approval of that plan. The fifth and final step is removal of the Fed itself.
This first step was a very small one actually, but every trip begins with a single step. It will take years to get rid of the Fed. I am hoping I live to see the day it happens.
Mike “Mish” Shedlock
All you need to know about how the BLS really counts unemployment in one simple cartoon.
And, as we expected earlier, here is Mr. Biderman’s summation on what will likely one day (after Russian hackers get into BLS emails) turn out to be an advance April fool’s joke by the Bureau of Lies and Stupidity:
TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 255,000 jobs in November. This past month’s results were an improvement of only 10.2% from the 284,000 jobs lost in October.
Meanwhile, the Bureau of Labor Statistics (BLS) reported that the U.S. economy lost an astonishingly better than expected 11,000 jobs in November. In addition, the BLS revised their September and October results down a whopping 203,000 jobs, resulting in a 45% improvement over their preliminary results.
Something is not right in Kansas! Either the BLS results are wrong, our results are in error, or the truth lies somewhere in the middle.
We believe the BLS is grossly underestimating current job losses due to their flawed survey methodology. Those flaws include rigid seasonal adjustments, a mysterious birth/death adjustment, and the fact that only 40% to 60% of the BLS survey is complete by the time of the first release and subject to revision.
Seasonal adjustments are particularly problematic around the holiday season due to the large number of temporary holiday-related jobs added to payrolls in October and November which then disappear in January. In the past two months, the BLS seasonal adjustments subtracted 2.4 million jobs from the results. In January, when the seasonal adjustments are the largest of the year, the BLS will add anywhere from 2.0 to 2.3 million jobs. In our opinion, trying to glean monthly job losses numbering in the tens of thousands or even in the hundreds of thousands are lost in the enormous size of the seasonal adjustments.
In November, the BLS revised their September and October job losses down a surprising 44.5%, or 203,000 jobs. In the twelve months ending in October, the BLS revised their job loss estimates up or down by a staggering 679,000 jobs, or 13.0%. Until this past month, these revisions brought the BLS’ revised estimates to within a couple percent of TrimTabs’ original estimates.
The large divergence between the two results begs the question of what is causing the difference. While we don’t have an answer today, we will be poring over the data in an attempt to answer that question.
Charles – here’s a hint: FOIA Obama’s TV tour for January. That way you will know what kind of NFP numbers to expect next month.