What Do You Have To Hide?

Bloomberg sues the Fed for refusing to disclose what sort of collateral they are lending against.  I come at this from having worked in insurance for two decades.  Insurers have to disclose every asset that they own in their Statutory filings.  When I looked at a bank’s call report recently, I was surprised to see only summary data available.  The insurance industry has high disclosure, and it hasn’t hurt them.  Why should the Fed cower, and refuse to reveal what they are lending against?  Five possibilities, and none of them good:

  • The Fed is breaking its own rules, and lending on collateral that it publicly said that it wouldn’t lend against.
  • They are playing favorites with institutions, and don’t want that to be revealed.
  • The assets in question are technically in compliance with the rules of the Fed, but are worth far less than the amount loaned against them.
  • Certain banks would be embarrassed by revealing what they own.
  • It’s just a power game, and the Fed thinks it is above the law, particularly during a crisis (that it helped to cause).

For another example, I would be happy to see who they are lending to in their CPFF program.  Are they lending a lot to AIG through CP?  Anyone else notice that AIG is A-/A3 from S&P and Moody’s which would make them A-2/P-2, and ineligible for the Fed to lend to, but S&P and Moody’s still have them at A-1/P-1.  Weird.

In my opinion, there is no good reason why the Fed can’t disclose the collateral, and the institutions involved.  They assure us that they are being upright and prudent; let them prove it.