The Fed’s culture of secrecy

By Felix Salmon
January 7, 2010
soul-searching project, it shouldn't just look at its regulatory failures and its inability to spot or care about the housing bubble. It must also think long and hard about its culture of secrecy, which seems generally designed to further the interests of its big-bank shareholders while keeping the public as ignorant as possible.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

If and when the Fed embarks upon its soul-searching project, it shouldn’t just look at its regulatory failures and its inability to spot or care about the housing bubble. It must also think long and hard about its culture of secrecy, which seems generally designed to further the interests of its big-bank shareholders while keeping the public as ignorant as possible.

Hugh Son has the story of the lengths to which the Fed and its Davis Polk lawyers were consistently telling AIG to disclose as little as possible, even as the SEC was asking for more transparency from the publicly-listed corporation.

Was the Fed demanding secrecy because, as Henry Blodget says, it wanted to keep the “outrageous” details of the government bailout a secret? Yes, that’s probably part of it. And maybe there was an element of worry that public disclosure would make it more obvious what the Fed’s Maiden Lane funds comprised, making it easier for the market to try to trade against them.

But mostly I suspect that this was just a knee-jerk thing, with Fed officials (yes, Tim Geithner, that means you) and their lawyers always wanting to tell the public only what they wanted the public to know, and to keep everything else secret. If you read Sorkin’s Too Big To Fail, one of the themes running through it is that public-sector officials were in serious panic mode for months, and were convinced that things were much worse than the markets and the press were indicating. It seems they thought that if they just kept things secret, maybe the markets wouldn’t find out, and could keep on running in thin air indefinitely. A bit like in the Road Runner cartoons: it’s only when you look down and see how bad things are that you actually plunge.

Michael Corkery also points out that all of this secrecy coincided with Geithner’s nomination to be Treasury secretary, which makes the whole thing stink much more: was Geithner deliberately trying to keep anything potentially damaging secret for the sake of his own personal career progression?

Both Geithner and the Fed need to come up with much better answers to all these questions than the ones they gave Bloomberg:

“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” said Jack Gutt, a spokesman for the New York Fed, in an e- mailed statement. Gutt said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”

Well, maybe it’s appropriate for the Fed to comment on disclosure. But that’s not the question. The question is why the Fed made the comments that it did: why was it always agitating for secrecy? That’s the big question, and unless and until the Fed can provide a reasonable explanation, the rest of us are naturally liable to assume the worst.

More From Felix Salmon
Post Felix
The Piketty pessimist
The most expensive lottery ticket in the world
The problems of HFT, Joe Stiglitz edition
Private equity math, Nuveen edition
Five explanations for Greece’s bond yield
Comments
7 comments so far

It’s worth noting that, as of 20 years ago, the Fed didn’t even make public its target for the federal funds rate.

I’m not saying all these men are angels, but my assumption has largely been the road runner thing; there was a certain hope that they could get things at least somewhat patched up behind the scenes before any self-fulfilling financial panic got under way.

Posted by dWj | Report as abusive

1. The Federal Reserve is the standard bearer of the United States Corporate Governance thus strict adherence to the United States Constitution is the Reserve’s mission. Also, the Articles of Incorporation must be understood by all the Board Governors of the Federal Reserve so there is no inkling of corruption by appointed public officials. The Public Trust is the diamond that must not be scratched.
2. However, overall the Federal Reserve has done well to cement the integrity of our Public Trust which stands engrained in the beloved public corporation called the United States of America. There will never be an enemy strong enough foreign or domestic who will scratch the conscious of this nation. This is why the Central Banks of the Federal Reserve in partnership with the United States Armed Forces and NATO will deliver in the national interest of the people the mandate for prosperity and economic security of this country. Let no terrorist cell or world crime syndicate stand in the way of this order demanded by every citizenry of the United States of America.

Antonio the Sun
The Proletarian

Posted by Proletarian | Report as abusive

It doesn’t matter where you stand; conservative, moderate, liberal, the politicians elected to act in the best interest of the country failed. More than that, their actions over the last forty years, allowed the very institutions charged with guarding the financial security of the country, business and We the People, plunder the economy. The actions of these institutions threatened the national security of The United States of America.

Whoever is elected or re-elected in this next election cycle, must hear the voice of our businesses and people. Make real changes to the system that has jeopardized the prosperity of our country. Don’t let the laws be weakened until they are meaningless.

Posted by R_Davis_Ison_IV | Report as abusive

Just a thought (or even political day dreaming): what if President Obama asks Geithner to resign and Congress in it’s remarkable turn of the event does not confirm Bernanke?

Months back in August I speculated that Bernanke will be Man of the Year because clearly his bold moves saved American Economy. But this week his speech in Atlanta clearly demonstrates that ‘he does not get it’ and he does not want to own any of his mistakes.

Remember – when Greenspan was repeatedly asked whether Housing was in bubble, how could he advocate 1yr ARM in Congressional testimony and how come he was not controlling CDOs or derivatives; he was tone deaf. He never accepted his mistakes and we all paid the price. How do we know that Bernanke is not making the same mistakes today so as another collapse of finance is forced on USA?

Fact is Bernanek is making mistake by tending to hold the ‘turf’ of Fed in it’s old wicked ways. If American people were to elect Fed Chairperson, he would be Wiston Churchill – you won WWII, now go home. Bernanke saved us but refuses to admit ‘his skin in the game / mess’; time to go. Will our Congress be with so much Spine? Or indeed do we want maiden victories by Tea Party Candidates in House and Senate after 2010 election?

Geithner – he is kind of Obama’s Rumsfeld. President Obama needs to realize that it is indeed not worth to keep on bleeding the political capital on account of this guy. What is that Obama Admin. going to get by continuing this guy? Reduced unemployment and hence praise from people that President stood by his Sec.? Doubtful. Yes, President can wait until election result in Nov. 2010 and then throw the bone of Geithner resignation. But what does it buy for American people till then?

Except for National Security and War; we want this Admin. to talk all the time about Jobs, Economy and holding Bankers responsible. That is not happening and Geithner is not the man who looks like would do that. He still does not understand that his paycheck is not coming from big banks. It is too late and WH needs to show him the road to home.

Posted by umeshgeeta | Report as abusive

I recommend William Greider’s “Secrets of the Temple.” It is an excellent analysis of the Federal Reserve.

Posted by cadabra | Report as abusive

Nonsense. The federal reserve only cares about their banking buddies and their hold on power. They are not elected representatives of the people, they hand picked from within the banking community and appointed. Their ill gotten power is an affront to the democratic ideals of the constitution. That the media defends this illegal banking cabal so vehemently is an admission of the extent to which they control the USA.

Until the federal reserve is audited by independent party, the american people will not know the many sordid high crimes and abuses of power that the federal reserve has committed.

Again, the federal reserve does not care about price stability, inflation, employment, or the economy.

Everything that they and their congressional puppets since the fall of 2007 has been to only help Goldman Sachs and JP Morgan Chase continue their worthless and wicked existence.

The federal reserve is the absolute enemy of the american people. They are group of arrogant, evil, and dangerous men that need to be stopped at all costs!

Audit the fed, abolish them, punish them, and break up Goldman Sachs and JP Morgan Chase.

While we are at it, we should fire everyone at the CFTC and SEC because they have become mere puppets of the big banks!

Posted by bigkirb1 | Report as abusive

What is truly amazing is how the Republicans are managing to slosh this whole fiasco off on Obama and deservedly so.

Posted by williambanazi7 | Report as abusive
Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/