Fed knows transparency when it sees it

October 7, 2009

From the start of the financial crisis, the Federal Reserve has fought to keep secret the many measures it has taken to prop-up the banking system.

The Fed has opposed releasing information about the trillions of dollars in loans it made during the crisis or the tens of billions of dollars in troubled assets it has taken on its balance sheet. For instance, the Fed still won’t say just what it acquired, when it took on some $29 billion in troubled assets from Bear Stearns last year.

Yet the Fed has no trouble demanding transparency from others. In the bankruptcy case for Extended Stay Hotels, in which the Fed is a big creditor after assuming some of Bear’s assets, the central bank came out for the appointment of an examiner.

Why? Well, according to court papers filed in the bankrupty case, the Fed says:

Given the likelihood that the New York Fed will be called upong to publicly explain any loss, the New York Fed would be remiss if it did not acknowledge to the Court its own independent interest in obtaining transparency into the collapse of the Debtors.

Isn’t that rich? Now I have no problem with the Fed throwing its support behind the appointment of a bankruptcy examiner–something the judge in the Extended Stay case did recently approve. Examiners often bring a pair of fresh and untained eyes to the process.

But for the Fed to argue the merits of transparency, while it prevents the public from looking into its own affairs, is simply hypocritical.

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