Tuesday, November 11, 2008

Pay no attention to those securities behind the curtain 

In return for reserves, many banks, primary dealers and commercial paper brokers are putting up all kinds of collateral. Back in May, Bloomberg started to request a report from the Federal Reserve to learn what exactly was the collateral being put up (say, for example, in the Maiden Lane SIV, which is an asset on the Fed's balance sheet created to help finance the Bear Stearns takeover.) It's worth knowing for several reasons. For one, the Fed's profit helps reduce the government budget deficit, so if say Maiden Lane should come up short next year when the loan is to be paid back, the deficit would increase by the amount of profit not earned by the Fed. I think we'd want to know how much risk to the Fed's balance sheet has been taken on by these assets.

But they aren't going to tell you if they have their way:
Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply.
Bloomberg is now asking a judge to compel disclosure under FOIA, and the Fed is resisting.