To Gaze On Zombies

Excerpts from Bloomberg:

Federal Reserve Must Disclose Bank Bailout Records (Update5)

March 19 (Bloomberg) -- The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.

Right to Know

If today’s ruling is upheld or not appealed by the Fed, it will have to disclose the requested records. That may lead to “catastrophic” results, including demands for the instant disclosure of banks seeking help from the Fed, resulting in a “death sentence” for such financial institutions, said Chris Kotowski, a bank analyst at Oppenheimer & Co. in New York.

“Whenever the Fed extends funds to a bank, it should be disclosed in private to the Congressional oversight committees, but to release it to the public I think would be a horrific mistake,” Kotowski said in an interview. “It would stigmatize the banks, it would lead to all kinds of second-guessing of the Fed, and I don’t see what public purpose is served by it.”

Senator Bernie Sanders, an Independent from Vermont, said the decision was a “major victory” for U.S. taxpayers.

“This money does not belong to the Federal Reserve,” Sanders said in a statement. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”


There is no doubt in my mind that the Fed and other forces will fight this ruling to the bitter end.

The largest ponzi scheme in world history will be unable to continue if we get transparency and disclosure.
The bank zombies need secrecy to continue being fed by The Fed.

In my view, anything else could result in a collapse of confidence in the entire banking system and a run on the banks (discussed here) and bank holidays.  Without massive reforms to the amount of reserve capital banks hold, there is no happy outcome, in my view.  
The likely outcome of this means deflationary forces will remain in place for an extended period.

Of course, it is possible that the Fed, driven by political pressure could pull the overdrive lever on the printing press. 
Another unhappy outcome could occur should some academic wonk get the idea of putting an expiry date on money to increase it's velocity. (We discussed this idea here).
Both these ideas are quite mad, but given the resistance to disclosure and prudence, are not completely out of the question.

Today's Reflection:
"Do not participate in the unfruitful deeds of darkness, but instead even expose them...But all things become visible when they are exposed by the light" 
Ephesians 5:11,13