Friday, December 12, 2008

So much for transparency

Shh. Don't tell them the bad news.

I guess we should have expected it. Government agencies are not known for being the most open of groups, but you'd think that in the case of making loans the Fed of all people would be a bit forthcoming. But to date that is not the case, which is a bit disturbing.

From Exclusive: Fed Refuses to Disclose Recipients of $2 Trillion in Lending "
"The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral."
In a way, this smells of the Japanese response during their bear market collapse when banks were urged to keep bad debts on the books. But not telling bad news is rarely an optimal solution.

More from the article:

"“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, who oversees about $14 billion at New York-based ICP Capital LLC....The Fed stepped into a rescue role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program. The central bank loans don’t have the oversight safeguards that Congress imposed upon the TARP....Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA. "

What really is troubling is this quote, which seemingly is saying, "we have more bad news, but if we tell you, you might panic."

"In its response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” when the “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”"

While the incentive to not disclose is understandable, it is also probably wrong: by not saying who is in trouble, investors will fear the worse for all institutions.

No comments: