The Transparency Principle in Our Crisis World


As the bailouts mount serious questions remain about the future formation of the economy and the government. These questions revolve not just around policies, but around principles. One of those principles that everyone–senators, congressmen, newspapers, the President–has stated support for is transparency. But, the battle for real transparency in the current cleanup of the market mess is woefully wanting.

Bloomberg reports today that the Federal Reserve has rejected their Freedom of Information Act (FOIA) request for information relating to the nearly $2 trillion in Fed loans to banks and securities firms. The Fed states that their refusal to fulfill the FOIA request is due to an “exemption under trade secrets.” Also, the source of a lot of the lending is the Federal Reserve Bank of New York, the former perch of Treasury Secretary Geithner, which is not subject to FOIA law.

Congress was able to extract some transparency from the Fed in the past, as Bloomberg recounts:

On Feb. 23, the Fed disclosed a breakdown by broad categories for $1.81 trillion of collateral pledged by banks and bond dealers as of Dec. 17 after Congress demanded more transparency from the central bank.

The largest portions of collateral being held by the Fed at that time were $456 billion in commercial loans, $203 billion in consumer loans and $159 billion in residential mortgages, according to the central bank’s Web site. It didn’t identify any loans or provide their credit ratings and said it will update the figures about every two months.

The Fed, however, is still remaining intransigent in their opposition to transparency in their lending. Aside from the refusal to disclose lending to these firms, the Fed is also refusing to provide details about the bailout of A.I.G., particularly the counterparties to the bailout. Meanwhile, the details of new transparency requirements for TARP and TALF recipients are still rather vague.

It is really important to stand firm in the insistence on transparency at the outset of this recreation of our economic and governmental spheres. All information that can be made public about the lengths taxpayer money is being used to finance the stabilization of private firms must be made available. Similarly, all efforts by private firms to influence the public sphere must be made available. The financial crisis was abetted by an institutional crisis in government caused by excessive political influence–lobbying, PAC money, campaign contributions. These influencing actions need to be made transparent just as much as the money pouring from the public coffers into private companies. That means real time transparency! When a lobbyist meets with a lawmaker or a regulator, it must be reported within 24 hours. When a CEO makes a campaign contribution, it must be reported within 24 hours.

When Louis Brandeis called for “Sunlight as the best disinfectant” (first published in 1913) he was discussing the new financial instruments of the early 20th century. His famous line was resurrected again after those financial instuments failed leading to the Great Depression. This crisis requires a more thorough implementation of Brandeis’ ideal of transparency in our government and our markets. Without that we are asking to repeat the mistakes leading up to our current situation.

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  • “but it may just wind up being a bunch of grandstanding”

    If that’s the case, I would interpret that as rubber stamping.

    “The question is whether they have any power to do anything about it.”

    The notion that the Fed NY is independent of Bernanke is laughable. Only Senators could find that argument reasonable… because their true intention is to continue the past 100 years of outsourcing monetary policy to the executive… and they have absolutely no intention of changing that.

    IMO, it’s very similar to the unconstitutional “authorization to use force” in Iraq.

    The Constitution is clear. The Congress just prefers to beat their chests and feel important, rather than holding an executive accountable.

  • It seems to me that this is very much a case of the legislative vs. the executive (not R vs. D).

    Will the Dem Congress rubber stamp the Dem Prez as the GOP Congress rubber stamped the GOP Prez?

    I realize that monetary policy is far different from war policy, but I hope Dodd / Frank challenge Obama on this and don’t start down the rubber stamp path of their predecessors.

    • It doesn’t appear as though the legislative branch is willing to blindly follow the executive. The question is whether they have any power to do anything about it. Lawmakers need to actually push for legislation making the Fed more transparent and forcing the disclosure of how taxpayer money is being spent. There seems to be a desire to do something, but it may just wind up being a bunch of grandstanding. Still, when you have Dodd, Shelby, Bunning, Wyden, Cantwell, and Mark Warner all echoing the same argument one assumes that they are all getting the same Howard Beale-esque message from their constituents to do something.

  • Shane Harris

    I do not understand how they can refuse. Why is there no penalty to such refusal? It seems like clear violation of law. I am, of course, not a policy wonk, so this is a question asked in ignorance of the process.