Guest Post: Why is National Security Being Invoked to Keep Basic Financial Information Secret?

Reuters notes:

U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

The national security claim may seem outlandish, but it is nothing new.

As Business Week wrote on May 23, 2006:

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.

In other words, national security has been discussed for years as a basis of keeping normal accounting and securities-related disclosures secret.


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About George Washington

George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander…


  1. i

    Um, gee. I guess it just *couldn’t* be that many clandestine and possibly illegal operations were being secretly funded through AIG, Goldman Sachs, et. al.

    It might be that the aforementioned corporations benefited from this opaqueness gained by funding such operations. Quite the mutually beneficial back scratch, that.

    And possibly, just possibly, some high-level security folks both foreign and domestic might have profited handsomely skimming some of the cream off the top of that money sloshing around. Of course, it’s all speculation.

  2. PisssT

    I’ll tell you why.

    I am turning 61 this year and I’m an erstwhile hippie who is way more pissed off about what is happening in Washington and to the economy than I ever was about Vietnam.

    Perhaps they deem the secret keeping it to be in the interest of national security because they know or fear that we are getting very close to a tipping point where people will be marching in the streets again.

    Only this time they won’t be singing or chanting as many slogans.

  3. Trainwreck

    Perhaps because, if these financial institutions were to honestly report what their assets and liabilities are, we would be shown a great gaping chasm of red ink.

    Keep in mind Enron was practicing accounting fraud and hiding their loses in Special Purpose Entities as far back as the early 90s. Who do you think taught them how to do it?

    There is a reason why Calpers et al sued almost every single major bank for aiding and abetting that financial fraud. And there is a reason every single tier one bank settled that class action suit for a hefty ransom.

  4. CaitlinO

    “In other words, national security has been discussed for years as a basis of keeping normal accounting and securities-related disclosures secret.


    Because they can?

    Until we come together and say that they can’t. As we did about 40 years ago.

  5. Eeyores Enigma

    Relax folks. The reason for all this is because it IS National Security.

    The Imperial jig is up and it’s all out war fought mostly on the financial/economic fronts but also cyber front.. for now.

    Things will heat up soon enough. Its just no one wants to be the one who everyone points a finger at and says “They Started It”.

  6. Petri Dish

    If financial disclosures are a matter of national security, the power to compel disclosure should be covered by The Pariot Act which gives the President tremendous latitude in defining and declaring national emergencies.

    Even better, the President has the power to declare enemies of our national securiy, both foreign and DOMESTIC, enemy combatants and to imprison them without counsel or rights for an indefinite period.

    Perhaps Gitmo should be reinvented as Goldman Sachs, The Carribbean Campus. A good black site is a terrible thing to waste.

  7. StevieLee

    Well, it turns out that it was an official from the SEC themselves that “suggested” to AIG’s lawyers and accountants that they could invoke a ‘National Security’ clause (ruse) as a legal excuse to withhold crucial details of AIG’s counter-party payouts. The heavily redacted Schedule A that AIG finally submitted to the SEC was accepted by the supposedly “watchdog” agency – who now is defending AIG’s withholding of this vital, public information – citing the very “National Security” clause that the SEC “suggested” they invoke.
    Isn’t it time that we either abolish this Wall Street lap-dog agency, or seriously overhaul and reform it from the ground up – starting with firing it’s lacky head – former FINRA huckster: Mary Shapiro.
    And pray tell why there isn’t some kind of a congressional investigation into the former SEC ponzist facilitators like Chris Cox, and Linda Thomsen – who blatantly violated the law by aiding and abetting Wall Street during there tenure there, and who now work for the very same firms that they were supposed to be ‘investigating’ in the first place.

  8. Francois T

    Because no one in position of authority wants to be held accountable by those who are not part of “the circle”. The way the insiders see it, he outsiders ask too many questions, challenge basic assumptions and are a royal PITA to begin with. They also happen to threaten the livelihood and perks of the insiders; that’s bad for business as usual. Why not choke the chicken and move on? “Won’t do it again…will be more careful next time, won’t we?”

    This frame of mind is pretty pervasive; so much so that if given the occasion to put an incident under wraps, the temptation to do so will be nothing short of irresistible.

    That is what happened in the case that gave birth to the State Secrets Privilege doctrine. The facts of the case were seemingly simple: a test pilot and the entire crew perished in the crash of a B-29 Superfortress. Hey! Flying is risky!…stuff happens! So sad!

    However, explanations provided to the families were far from convincing; furthermore, some contradictions started to emerge.

    Families sued to know the truth. Case went all the way to the Supine Court who sided with the go-vermin. Thus, the State Secrets doctrine became law.

    That was in 1952. Fast forward half a century, take one of the daughters of the test pilot and get your FOIA request on.

    What did the daughter see?

    A cover up! Turns out the maintenance logs showed a carelessness and mismanagement that would have cost the military, a colossal embarrassment.

    The aftermath of this discovery are as repugnant as the original case.

    After release of the classified documents, new litigation was attempted, based in part, on a complaint that the classified material contained no secret information. Monetary damages were sought as a remedy. The initial new claim was to the Supreme Court for a writ of error in coram nobis, based on the claim that the use of the “secret” label in the original crash report was a fraud on the court. This was an attempt to overturn the settlement agreement of June, 1953. This motion was denied on June 23, 2003 in In re Herring. (In re Herring 539 U. S. 940 (2003))

    The case was refiled as Herring v. United States in the United States District Court for the Eastern District of Pennsylvania on October 1, 2003. The trial court found no fraud in the government’s claim of privilege in 1953. In 2005, the Court of Appeals for the Third Circuit upheld the decision in this new litigation, in which District Court determined “there was no fraud because the documents, read in their historical context, could have revealed secret information about the equipment being tested on the plane”.

    Needless to say that some people were kind of kerflummoxed by this decision. So much so that there were Senate Hearings on this very topic.

    That said, the State Secrets Privilege keeps expanding and expanding further. If history is any guide, it won’t stop anytime soon.

  9. Cynthia

    Obama is using his ill-gotten, anti-American, unconstitutional presidential powers that he inherited from Bush to protect our war criminals from prosecution. So it sounds like the Obama Administration is extending these powers to our financial markets in order to protect our financial criminals from prosecution.

  10. cent21

    Let’s suppose there was a conspiracy to sell trash, particularly to china, and to invest the proceeds in ways that could perpetuate the US’s ability to continue living high on the hog with appreciating assets.

    IE, the US showed humongous trade deficits and budget deficits for years. We somehow ‘made it up’ by having ‘our’ assets appreciate faster than the IOUS that were piling up.

    Perhaps it was a national securtity concern to hide the trading trail – both to protect the guilty as well as to hide the fact that the damn thing finally blew up, and not only that, but the leverage threatens to continue blowing up with deflation and increasing interest rates.

    Well, OK, so if not that, then what?

  11. Dale

    Interesting the National Security Hide.
    Our secret Government at it again. Remember the Swiss Accounts IRS wanted info on. Dropped from media site.
    Closed door health care reform, very Democratic. Best way to a reformed government, Vote them, ALL OUT OF OFFICE. Can the average tax payer support the backdoor policy of Wall Street, The FED, or the federal budget deficits.
    Washington will be consumed by itself serving interests.
    Our Founders never envisioned Professional Politicians,
    read The Constitution, all required remedies are written in black and white.


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