Comments on: Guest Post: Fed Transparency Watch

By: S

Wed, 03 Dec 2008 19:29:00 +0000

Excellent post.

And for all those cheering the Geithner nomination i suggest winding back the Senate hearings on bear Stearns and watching the exchange over disclosure of the cusips of the securities. I belive it was geithner who said they would disclose the Cusips. Never happened of course. Also it was the NY Fed that just hired the former head of the BS risk management. Indeed it owuld be interesting to see hiom asked about this at the confirm hearings but i am sure this is a minor detail compared to the AIG and every other facility the Fed has instituted.

Welcome to the promise land.

By: Anonymous

Anonymous — Wed, 03 Dec 2008 18:07:00 +0000

It's a dog and pony show all the way.

Congress votes for TARP and then tries to ridicule it at the same time.

You can rest assured that the Federal Reserve can't go broke due to the printing press available to them. Unfortunately, inflation leading to hyper-inflation will be the results of these bank bailouts.

Just give it some time to appear.

By: M.G.

M.G. — Wed, 03 Dec 2008 17:23:00 +0000

“The GAO’s discouraging report makes clear that the Treasury Department’s implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers,” said House Speaker Nancy Pelosi, D-Calif.
Transparency and accountability

By: Lune

Lune — Wed, 03 Dec 2008 16:14:00 +0000

YK-
That's been the argument, that stigma can force a sound bank to fail, but Buiter doesn't buy it (and neither do I). The argument is that "stigma" i.e. unfounded concern about a bank's solvency can hinder banks from raising additional capital through the private market (since investors are prone to stay away from stigmatized banks). Thus, a bank taking some money from the govt can actually worsen their financial situation because they lose far more private money than they gain from the govt.

The problem with this argument is twofold. First, if the stigma really is unfounded, then the bank should have enough capital reserves to weather a 6 month stain on its reputation. If it doesn't have that much in reserve, then it really isn't sound and the stigma is deserved. It's sort of like the argument with the AAA rating. If you really need that AAA rating to raise enough capital to stay alive for the next 6 months, and can't tolerate a downgrade, then you really aren't AAA.

Secondly, if the point of all this Fed bailout money is to make unsound banks sound, then banks should be advertising the fact that they got bailed out since that implies that whatever the case may have been prior, they have been made whole by the govt and are now sound, giving private investors the confidence to start investing again. That's the whole ostensible point of all these lending facilities. Otherwise, we're just throwing away $700 bil without actually increasing the stability of the banking system.

So in the end, either stigmatized banks really aren't sound, and deserve the stigma, or the Fed's programs are useless at improving the soundness of banks. Neither conclusion provides justification for not disclosing the deals that have been made so far.

By: fresno dan

fresno dan — Wed, 03 Dec 2008 14:27:00 +0000

Certainly agree that there is no good arguement for secrecy. But as a gubermint weenie, it is par for the course. The truth is painful, and there is little benefit to speaking it – we are going to be significantly poorer. Its easy to say that everybody else getting a 20% haircut will be what happens, but damn, I really don’t want to give up my mocha latte grande.

By: River

River — Wed, 03 Dec 2008 09:24:00 +0000

I have read a lot if verbiage regarding the suit: Bloomberg vs Fed. What I have not read is Why Did Bloomberg Decide To File Suit?

I understand that it would be great if Bloomberg forced transparency. Question is, is transparency the motivation behind the suit or is there some other, or an additional, rational?

By: M.G.

M.G. — Wed, 03 Dec 2008 08:06:00 +0000

Buiter underlines that “Significant remnants of this ethic can still be found on the European continent and in the US – less so in the UK”. I am interested in transparency in the European continent and would like to know more about highly levered European banks and their exposures to US derivative markets. Could the ECB shed some lights?

By: ndk

ndk — Wed, 03 Dec 2008 07:04:00 +0000

I think what the Fed is doing is trying to conceal, not any "stigma" of the bank borrowers, but that the Fed is insolvent and would have to be shut down by Sheila Blair if it were a commercial bank.

I can't agree with you, but only because Sheila Bair doesn't actually shut down insolvent banks. Otherwise, spot on, as these Englishmen might say.

By: Independent Accountant

Independent Accountant — Wed, 03 Dec 2008 06:21:00 +0000

YS:
I read Buiter’s piece and agree with his regulatory capture argument and have made it myself. As to his audit and reporting requirements, I can’t buy it. I think what the Fed is doing is trying to conceal, not any “stigma” of the bank borrowers, but that the Fed is insolvent and would have to be shut down by Sheila Blair if it were a commercial bank.

By: Anonymous

Anonymous — Wed, 03 Dec 2008 06:20:00 +0000

It’s that elusive number that they are trying to hide. You know the number that represents all the bad investments in the world. Expose that number and we will be shown to be insolvent as a nation.

As long as the Federal Reserve gets to keep the Treasury’s books, we’ll never know the true number. Congress certainly doesn’t want to know.