Secrecy surrounds those receiving benefits of Federal Reserve's trillions

Secrecy surrounds those receiving benefits of Federal Reserve's trillions
David Hirst
December 19, 2008


The Fed is refusing to speak, raising fears that things could end in the deepest of depressions.

OF THE many elephants cluttering the denial room of extremely high finance in the US, the daddy of them all, the veritable woolly mammoth, remains undisturbed.

The Federal Reserve has formally refused a request by Bloomberg News that would have poked the sleeping giant. It didn't raise a tusk.

Bloomberg has taken on the task abrogated by the rest of the US financial media to keep the bastards — if not honest — aware they are being watched.

Some discerning followers of the US market may have noted these amazing developments. Principally, it means that US taxpayers — and potentially taxpayers the world over — are subject to taxation without representation, for Congress neither sees, hears, speaks nor countenances evil, "we the people" of the world are not to be allowed to know where the money is going. And we are talking trillions here.

Bloomberg filed suit on November 7 under the US Freedom of Information Act, requesting details about the terms of 11 Fed lending programs created during the deepest financial crisis since the Great Depression.

The Fed responded on December 8, saying it is allowed to withhold internal memos as well as information about trade secrets and commercial information.

"If they told us what they held, we would know the potential losses that the Government may take and that's what they don't want us to know," said Carlos Mendez, a senior managing director at New York-based ICP Capital.

Bloomberg said: "Total Fed lending exceeded $US2 trillion ($A2.9 billion) for the first time on November 6. It rose by 138 per cent, or $US1.23 trillion, in the 12 weeks since September 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA." This, of course, is just a fraction of the amount "committed" to these entities, financial or otherwise.

Congress is demanding, not very loudly, more transparency about the Fed and Treasury bail-out, with House Financial Services Committee member David Scott saying Americans had been bamboozled.

Bloomberg said: "In response to Bloomberg's request, the Fed said the US is facing 'an unprecedented crisis' in which 'loss in confidence in and between financial institutions can occur with lightning speed and devastating effects'.

"The Fed supplied copies of three emails in response to a request that it disclose the identities of those supplying data on collateral as well as their contracts."

While the senders and recipients of the messages were revealed, the contents were erased, except for two phrases identifying a vendor as IDC — Interactive Data — Auction Rate Security Advisory May 1, 2008.

Bloomberg, having one single lead, followed it up but Brian Willinsky, a spokesman for Bedford, Massachusetts-based IDC, a seller of fixed-income securities information, declined to comment.

The Fed, in a truly Orwellian (and I don't throw that word around) moment said: "Notwithstanding calls for enhanced transparency, the board must protect against the substantial, multiple harms that might result from disclosure." That was from the pen of Jennifer Johnson, the secretary for the Fed's board of governors, in a letter emailed to Bloomberg News. She continued: "In its considered judgement and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information."

The executive director of The Reporters Committee for Freedom of the Press, Lucy Dalglish, said: "There has to be something they can tell the public because we have a right to know what they are doing.

"It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed."

Indeed, imagine if the amazing Mr Madoff had been on top of his game and declared himself a bank a month ago and got himself hooked up to the Fed lifeline? As a former Nasdaq chairman, a man with an impeccable record and trusted by all, it is not one bit unthinkable.

His alleged Ponzi scheme would have gone on until there were no trees left to turn into fraudulent dollars. Instead, he languishes under "house arrest". In which house, you ask? He has at least seven. I doubt he's stuck in a sharecropper hut down by the "big muddy". Yes, that ol' man river is like the Dow, "He must know sumpin'/But don't say nothin'/He jus' keeps rollin'/He keeps on rollin' along."

But if we can't be told who is getting these trillions, the question must be asked whether other phonies are on the lifeline.

For while these high-wire shenanigans, or worse, play out, the US and the rest of the world are facing a very hard landing. I fear America is looking down the barrel of something along the lines Russia experienced under Yeltsin. It will need all the financial ammunition it can muster when the going gets really tough.

Darryl Robert Schoon, a prolific writer on the financial system and author of Time of the Vulture, wrote on his blog yesterday of terrible times ahead and laid the cause of world woes, in part, at the feet of the Fed and the world's bankers. "We are about to experience a depression in extremis," he warned. "Although similar to the Great Depression, what is about to happen has never happened before; we are about to experience something new, a depression in combination with a currency collapse, une Grande Depression a la papier-monnaie".