Fed Thumbs Its Nose at Audit the Fed; Withholds Data Required on $885 Billion of Collateral

Well, even under the compulsion of law, the Fed chooses not to comply. Should we be surprised that it continues to refuse to make mandated disclosures?

In this case, as reported by Bloomberg, the Fed has withheld information that was of the collateral posted by borrowers to secure $885 billion of loans. Without this information, it is impossible to ascertain the risks undertaken in various emergency facilities. Dodd Frank specifically requires this detail be released. The relevant language is boldfaced:

(c) PUBLICATION OF BOARD ACTIONS.—Notwithstanding any other provision of law, the Board of Governors shall publish on its website, not later than December 1, 2010, with respect to all loans and other financial assistance provided during the period beginning on December 1, 2007 and ending on the date of enactment of this Act under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities pro- gram, foreign currency liquidity swap lines, and any other program created as a result of section 13(3) of the Federal Reserve Act (as so designated by this title)—
(1) the identity of each business, individual, entity, or foreign central bank to which the Board of Governors or a Federal reserve bank has provided such assistance;
(2) the type of financial assistance provided to that business, individual, entity, or foreign central bank;
(3) the value or amount of that financial assistance;
(4) the date on which the financial assistance was provided;
(5) the specific terms of any repayment expected, including
the repayment time period, interest charges, collateral, limitations on executive compensation or dividends, and other material terms
; and
(6) the specific rationale for each such facility or program

In other words, there is no way to pretend that this information was not part of the stipulated disclosure. The terms of the various types of support extended are to be revealed by borrower, in particular the details of the various types of support extended, including the collateral posted. Instead, the Fed provided the data on an aggregated basis, by asset type and rating and then only for three of six facilities.So what is the Fed trying to hide?

A number of experts correctly pointed out that this is inadequate:

“This is a half-step,” said former Atlanta Fed research director Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “If you were going to audit the facilities, then would this enable you to do an audit? The answer is ‘No,’ you would have to go in and look at the individual amounts of collateral and how it was broken down to do that. And that is the spirit of what the requirements were in Dodd-Frank.”…

It is “specifically impossible” to know how much risk taxpayers were taking by looking at pools of collateral grouped by asset class and rating, said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “Elements of Structured Finance,” published in May by Oxford University Press.

“I need to know the individual composition because a $2 billion pool can be one asset of $2 billion, which would be very risky, or 2,000 assets of $1 million each, and that’s not risky at all,” Raynes said. “The spirit of Dodd-Frank was not respected, and they used the vagueness in the wording of the law to weasel out of fulfilling their duty to the American people.”

One expert argued that the data needed to be withheld because it might spur bank runs. This is simply barmy. These loans took place during the crisis; this exercise is about past, not current exposures. And the Treasury has given all the TARP banks clean bills of health. There’s no risk here, save to the Fed’s reputation and its secrecy.

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    1. russkirk

      I’m hoping our MOTU-subservient DoJ doesn’t find Assange before the promised early 2011 release of bankster docs.

      1. karen1p

        Assange has already taken care of that. He put up an encrypted file with massive data. He said that if anything happens to him, there will be a published link to de-code the infomation. He has produced an insurance policy for himself and his life. He is a brilliant and courageous man.

      2. robert

        I see Bank of America is emphatically denying they are the target of the proposed leaks in the New Year. So who could it be? The Fed is a bank right? Now that would be a Christmas present worth waiting a week or two for.

  1. curlydan

    “One expert argued that the data needed to be withheld because it might spur bank runs”

    Even if this were true, Congress passed the law, and the Fed is required to follow it…unless of course, you think you’re above the law.

  2. hermanas

    This is what bothers me about our kids suffering for honest government in Afganistan, we would be better if they were home.

    1. tawal

      I looked at some of the tables. Exact collateral was not provided, but type and agency rating was. But we all know how good that rating agency info turned out in 2007 and 2008. Quite a bit of the collateral was equity/stock, not sure how that squares with FED regs. Fed states that all facilities have been repaid, not sure how to prove or disprove that claim. Presumably they were paid within the maturity date, as the different programs had different maturities, overnight, 28 days, etc. Not defending the FED, but I believe that they will stick to their compliance is finished and we won’t see more. I’ll try to play with the tables over the next several days and come up with some conclusions. No doubt the MSM will beat me, but I may come up with an original conclusion. We’ll see…

  3. Wild Bill

    “…a $2 billion pool can be one asset of $2 billion, which would be very risky, or 2,000 assets of $1 million each, and that’s not risky at all.”

    Amazing that two years of straight market correlation hasn’t caused this guy to re-think his application of standard risk analysis to the “science” of economics.

    On the face of it, his comments support the rating agencies’ contentions that any individual junk-rated items can be cobbled together to eliminate risk and create a AAA-rated security. I think we all know how that turned out.

  4. Yearning to Learn

    These loans took place during the crisis; this exercise is about past, not current exposures. And the Treasury has given all the TARP banks clean bills of health. There’s no risk here, save to the Fed’s reputation and its secrecy.

    is this snark?
    on the one hand, I agree that times today are different than they were back in the crisis.

    however, does anybody truly believe that there aren’t some horribly insolvent banks that are only hanging on due to obfuscation through programs such as the Fed facilities and mark to myth accounting?

    who really believes the banks are fine due to the Treasury’s statements?!

    I agree that the “need to protect us from ourselves” secrecy is a sham… but I think that there probably are some skeletons that the PTB want to keep in closets. and there is a lot stuffed in those closets… so it’s dangerous to open any of the closet doors.

    1. steelhead23

      No Yearning, Yves believes every word out of Bernanke’s mouth. If Mr. Bernanke says the banks are on solid ground, she says you can rest assured that they are. Oh, BTW – the Fed is NOT monetizing the debt either. And all those missing loan documents, its just a few thousand clerical errors.

      Yves, if I have misconstrued the past two years of your blog entries, please feel free to correct me.

      1. Yves Smith Post author

        Yes, the point is if you believe the BS that the officialdom is putting out, there is no risk. The big banks are all healthy. So per their own position, they have no reason not to deliver the goods.

        And in addition, in the discussion of the Playboy article in which I was quoted at length, Bill Black (former bank regulator and NO fan of miscreant banks) says the Fed could fight an orchestrated bank run, even of a TBTF bank, successfully.

        1. Paul Repstock

          Yves; a bank run on one TBTF will not happen in isolation at this time. People have no faith and even the corporations have no trust in each other or the banks.

          98% of me hopes that the BS can continue. Only the other 2% demands justice and a multi season tree decoration.

          1. karen1p

            The bank run will not happen because the sheeple won’t DO IT! The banks can be fairly safe that the majority of Americans are clueless and continue watching “Dancing with the Stars.” End of story.

  5. Random Blowhard

    The Fed is hiding the fact that the TBTF banks are ALL INSOLVENT. That is why they will fight tooth and nail to avoid any accountability for their actions and spending.

  6. Edwardo

    “Quite a bit of the collateral was equity/stock, not sure how that squares with FED regs.”

    It doesn’t. And on that note I would like to humbly submit that this blog (and all the other financial blogs that have been chronicling the monetary authority’s perfidy (for going on several years) substantially adjust their mission to focus on the intricacies of instituting a new system.

    And when I use the term system I don’t simply mean the monetary system, but the political systm as well. After all, the ghastliness of the one could not exist without the grotesqueness of the other. I imagine the venerable proprietor of this site would protest that such a mission beyond her remit, however, I would to ask her to reconsider.

  7. Paul Tioxon

    When the government statutes stipulate public disclosure, and we are lied to by omission, is it any wonder that wikileaks and its future progeny is sorely needed?

    1. scraping_by

      Ron Paul’s the ally you could do without.

      Reading his book End the Fed is an interesting wander through the vagaries of the Tea Party flavor of economics. It’s seriously autobiographical, mostly his awestruck agreement with the Austrian School, his romantic pining for Ayn Rand, and a fair amount of name-dropping, with a few paranoid snarks thrown in. Lots of brilliant hindsight. The fed is always at the bottom of everything.

      At random: “The savings a loan crisis of the 1980’s was another effort of the marketplace to rectify the mistakes inherent in the system.” Ah? I guess embezzlement, kickbacks, and other forms of looting are now simple market making techniques.

      Oh, and even liberal Christians imagine a warm place in Hell for those who misuse Scripture. His out of context take on Genesis 47:15 bites even the unchurched.

      Those of us who see the need for a central bank controlled by an elected government, if we need one at all, might choose a better poster child.

  8. Sundog

    That Obama and the Democratic leadership are not shouting from the rooftops about this blatant noncompliance tells me all I need to know about this administration.

    This demonstrates again that the relevant comps for the US are Mexico and Russia.

  9. mannfm11

    I wouldn’t be surprised if it all didn’t look just like the mortgages on deposit in the trusts in NY, seeing as Goldman and its partners in crime are also in charge at the Fed.

  10. LeeAnne

    “… they used the vagueness in the wording of the law to weasel out of fulfilling their duty to the American people.”


    …they were ‘provided with the vagueness’ in the wording of the law that gave them permission to weasel …

    1. Yves Smith Post author

      I do not read the language as vague at all. I am hoping someone on the Audit the Fed team puts out a legal analysis to that effect.

  11. Hugh

    Congress watered down the original Audit the Fed bill. I know I warned that this was going to let the Fed get away with providing a lot of surface information that would allow them to hide how these deals were really put together.

    The Fed is stonewalling because the banks are insolvent. It took a trillion dollars of their crap on to its books and the banks are still insolvent. It’s not just Bernanke but the top echelons of the Fed should be in prison for what is one of the largest lootings in world history.

    Denninger noted yesterday that in some of the BoA loans, BoA posted collateral with a “value” of over $100 billion for a $15 billion loan, indicating that the true value of the crap collateral was only something like 10 cents on the dollar. Again we don’t have the details but that is about as crappy as crappy gets.

    What we need is a forensic audit of the Fed. We need depositions taken down under oath. We need the loan details and the correspondence. We need to know the beginning, middle, and end of these deals.

    And we need to understand that the Fed stonewalling was baked into this from the beginning. It was the only way that the banks and the politicians they own were ever going to let the audit pass. A condition of the audit was to make it as ineffective as possible.

    1. Skippy

      “It took a trillion dollars of their crap on to its books and the banks are still insolvent.”

      A trillion dollars on *nominated* value…based on fraudulent valuations, recension of laws, massive moneyed lobbying, extension of off balance sheet vagary’s, mark to myth, etc etc.

      Skippy…sorry Hugh had to fix that…sry.

    2. Doug Terpstra

      Hear, hear! This shell game will only end when the Ponzi farce collapses and/or the people get serious with pitchforks. Of course, this will require immediate parole for many or most of America’s two-million prisoners to make room in our vast for-profit Bastille system.

  12. Allen C

    Perhaps the most salient issue in the context of suspected, widespread insolvencies and clear, illegal behavior is that many continue to draw exorbitant bonuses.

    The politicians, bankers, and elite have their bunkers while the little peoples fight over the rotting potatoes as it were.

    1. psychohistorian

      I worry about pent up emotion. It tends to come out nastily when it blows….the death throes of empire, American version.

      1. Allen C

        There are many smart, succesful, non-financial folks in the US that largely preume that these folks are substantially honest and competent.

        I used to state that all roads lead to devaluation. Perhape my new mantra is that all roads lead to hyperinflation. It seems that the Fed will paper over any material financial problem including insolvency.

        I concluded almost a year ago that the peoples will repspond when it is already too late. While I suspect many lack capability beyond going to some central location in search of handouts, I hope that a critical mass forms a militia in seach of the evil doers. It may prove quite difficult for the elites to direct the soldiers inward when it was they that screwed their families. I can only hope that folks such as Yves remain around to focus attention on the culprits and their methods.

  13. KnotRP

    Did the law have any consequences for non-compliance (ha!),
    or is this just more kabuki theater to delay, divert, and
    wear down the opposition while doing the minimal amount
    necessary to keep up appearances?

    It’s a good thing it’s only about dollars, not something of value.

  14. Expat

    Afghanistan, Iraq, Tarp, Assange, DHS, DOD, CIA, NSA, the Fed, and so on.

    I suppose we have to get on with our lives and try to make money selling donuts or investing in the markets, but let’s face it. It’s all a sham and we are all just little sheep.

    GWB called Al Qaeda fascists because it is a term that is evocative and provocative. Typically, he misused the term. He (and his handlers running his radio controls) never bothered to look up the word.

    The US is a fascist state. The government, banking and industry work together and are beyond any rule of law.

    Did anyone really think we would be allowed to audit the Fed? Are you all still so naive?

    1. Frank

      Exactly. The US is a fascist state, and all major American institutions are controlled by corporate money to promote the corporate state. This has nothing to do with democracy, yet for the most part people don’t see the US as a fascist state. This is because they still have the freedom to move around, to choose one brand of consumer product over another, etc, so the American people confuse that kind of personal freedom with real freedom.

      But when it comes to the important things: the wars, health care, bank bailouts, etc the people have absolutely no say on these issues.

  15. razzz

    Okay….Let’s say, the Federal Reserve is toying with our emotions and Congress decides it wants to see exactly where the money went or where it is going and how much. If that happens, any President can make a command decision that it is in the interest of national security not to reveal the inter-workings of the Federal Reserve (current admin. hinted at this already). Obviously the banks are insolvent and exposure would just cause a national calamity not to mention runs on the banks and transmit to foreign banks and holdings as well. (US$ = world reserve currency)

    Unfortunately, governments don’t go broke, they default and reschedule debt but first begin by devaluing their currencies since it’s their printing press.

    Bernie recently has stated as much under the guise of balancing trade.

    If China or Russia + Euroland are the next best choices in reserve currencies, you can see why everyone pretends everything is going to be okay with the status quo.

    The entire planet is doomed when it comes to banking debt.

    Martin Armstrong is right, the TPTB are clueless, Congress is just one example.

  16. Bill

    Fed stonewalling is expected – TBTF is a known . When they blow up , which is a given in the false extend and pretend environs , the Fed won’t need an audit , the Fed will be dead . Patience , as in all market activities , is all that is needed . Don’t get angry , just nod and smile when the secrets in dark places are exposed to the light .


  17. AndyC

    “These loans took place during the crisis; this exercise is about PAST, not CURRENT exposures.”

    I think the collateral information they don’t want to reveal is probably still current.

    In other words its still no damn good.


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