Matt Stoller: The Federal Reserve’s Wheezy Independence Takes Another Hit

By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is:

You might have noted a few days ago that the Supreme Court ruled against Federal Reserve secrecy.  The case had to do with a lawsuit by Bloomberg’s Mark Pittman demanding access to emergency loan documents relating to the Fed’s bailout of Bear Stearns.  As the case traveled up the court system, major banks joined the Fed’s attempt to shield the information from public scrutiny.  Eventually, the Fed dropped the suit, but the banks didn’t give up.

A few days ago, the Supreme Court refused to hear the case, letting a lower court decision in favor of Pittman stand.  The Fed will now be releasing Bear Stearns-related emergency lending documents in a few days.

It’s a historic case.  You wouldn’t know that, however, by the response from Wall Street.

“I didn’t even know it was happening,” a senior bank executive said by phone this week when asked about concern over the pending release. There are no crisis meetings to discuss how to manage public reaction to release of the information, he said.

This is a far cry from the intense opposition to Fed transparency just last year from both Treasury and Wall Street.  The big banks, in the form of one of their trade groups known as the Clearinghouse Association, were crying wolf as late as 2010.

The Clearing House Association believes that disclosure of the identities of, and extent to which, financial institutions borrowed from the Fed Lending Programs likely would cause such institutions substantial competitive harm, and would impair the effectiveness of the Fed Lending Programs.

The “competitive harm” was so “substantial” that a highly political Wall Street executive had no idea that emergency lending information would shortly be released.  In fact, the damage will be so severe that no bank has prepared any response whatsoever.

The reality is, while they may have been panicking at the time, executives on Wall Street are not embarrassed to have used the Fed’s balance sheet as a crutch during the crisis.   It’s not even an afterthought.  Arguments about stigma, competitive harm, and a falling sky were all simply designed to preserve unneeded secrecy.  They got their “triple-thick milk shake of socialism”, and they liked it.

During the discussion of Dodd-Frank, Congress deliberated without knowing that the Federal Reserve had extended $9 trillion to various banks, foreign central banks, corporations, and hedge funds, often collateralized by junk.  That’s roughly $30,000 of lending for every American.  Shouldn’t Congress have known that Harley Davidson and McDonald’s were making payroll with Federal Reserve loans (or perhaps just getting access to cheap working capital unavailable to normal corporations)?  That seems like a useful testament to the fragility of our financial system, something to know about before engaging in supposedly wholesale reform.

More to the point, there is now an explicit two-tiered monetary system, where elites can borrow against junk collateral under difficult circumstances, while ordinary people face foreclosure and bankruptcy should they encounter liquidity or solvency problems.

Those with a longer-term perspective, such as former New York Federal Reserve Bank officer John Dearie, are a bit more worried about this dynamic.  Dearie, who is now a leader at Wall Street’s elite lobbying group – the Financial Services Roundtable  – is gently trying to head off further audits of the Federal Reserve with wheezy pre-crisis talking points.

“Short of broadcasting FOMC meetings on C-SPAN, it’s difficult to imagine how much more transparent the Fed could be. It’s also difficult to understand how intrusive investigation of monetary policy can be consistent with maintaining price stability when academic studies and centuries of experience around the world make clear that a central bank’s relative independence and its effectiveness in fighting inflation are closely linked..”

In other words, what are you so concerned about?  The Federal Reserve could not possibly be more transparent.  But don’t audit us!

Of course, the claims to transparency are not true.  The Federal Open Market Committee sets monetary policy for the nation, but will not release transcripts for its meetings for at least five years. This time lag on even knowing what was said during monetary policy deliberations is clearly an affront to democracy.  We still have no idea what Fed officers were thinking  in 2006, as the bubble inflated, in 2007 as credit constricted, or during the crisis itself.  (House Oversight Panel Chair Darrell Issa said he’d look into the five year time lag, though I haven’t heard anything since December. )

As emergency lending information is released, one can almost hear the laughter from big banks executives.  They won, or so they think.  Yet, the reputational damage from the crisis to Wall Street is at this point enormous, both within banks and among the public at large.  The specific documents released over Bear Stearns will probably show what we already know – excessive deference to banking interests.

The situation right now feels depressing.  Wall Street mega-banks, and the Federal Reserve officials in charge during the collapse, are more powerful than ever.  Ultimately, the consent of the governed does actually matter.  Markets do not work when there is effectively no rule of law, or rigged rules.  That is what we may be seeing in housing, with cultural shifts away from home-buying.  The next crisis, and it is coming, will see wholesale reform of the Federal Reserve and the banking system.  The public has noticed that the arguments from big banks are both untrue and self-serving, and that the Federal Reserve’s vaunted independence is simply more of the same.

The Fed and the concentrated banking interests took advantage of a deference to authority and a reservoir of trust that the public had in the system.  That trust was key to achieving what they needed.  But it is now tapped out.  And the next time that consent is necessary, it just won’t be there.

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This entry was posted in Banana republic, Banking industry, Credit markets, Federal Reserve, Guest Post, Legal, Politics on by .

About Matt Stoller

From 2011-2012, Matt was a fellow at the Roosevelt Institute. He contributed to Politico, Alternet, Salon, The Nation and Reuters, focusing on the intersection of foreclosures, the financial system, and political corruption. In 2012, he starred in “Brand X with Russell Brand” on the FX network, and was a writer and consultant for the show. He has also produced for MSNBC’s The Dylan Ratigan Show. From 2009-2010, he worked as Senior Policy Advisor for Congressman Alan Grayson. You can follow him on Twitter at @matthewstoller.


  1. F. Beard

    A system rooted in fraud (“Your deposit is available on demand even though we lent it out”), based on theft of purchasing power from all money holders including and especially the poor and shrouded in secrecy, what could possibly be wrong with that?

    But anyway, Jesus gave us the solution to the money problem 2000 years ago in Matthew 22:16-22, separate government and private sector money supplies.

    Our problem is we have been trying to use a single money supply for both the private and government sectors when they are polar opposites of each other. Both sectors will benefit from a divorce based on mutual incompatibility.

  2. Paul Tioxon

    If you look at the relationship between the state and private capital, the modern nation state has co-evolved along with capitalism to provide complementary, ancillary supporting services, paid for by the tax base, and not out of business operations. If you then can avoid taxation, but provide enough wage earning citizens to be taxed to support your state operated business subsidizing services, you have a going world system that allows for states to compete for your investment. Revealing too much information is not ceding so much command and control as it is opening yourself up to being debunked. The same skill sets used by NC readers who are active traders, wheeler dealers etc, to make money through equisitely honed analytic reasoning and research, will be used against them.

    There may not be so much as a insiders edge that can be gleaned from the strategy and line of argumentation involved at coming to some final decision. More often, what is revealed is the simpler truths: in whose service are these policy being pursued, and for the good of what group, or to the intended detriment of what group. Once the political battles are concluded and the decision made, the consequences intended or otherwise are a lot clearer than the intentions, the supporters and those that are moved to the periphery of power. Tracking in real time the movement of policy in the face of organized opposition is a lot more valuable for determining political opportunities, not just for those in the permanent government who work behind the scenes of cable TV soundbites, but for those of us outside the veil who may practice do it yourself policy initiatives.

  3. Toby

    its effectiveness in fighting inflation

    He’s a funny guy, this Dearie.

    That trust was key to achieving what they needed. But it is now tapped out. And the next time that consent is necessary, it just won’t be there.

    I would argue that ‘trust’ was already shaken to the cusp of collapse before the crisis, that power and leverage were what was needed and deployed. However, power and leverage have their deepest roots in excellent propaganda/public relations weaving and re-weaving the myth of ‘Freedom’ for our consumption and benumbing.

    The socioeconomic machine has enormous forward momentum, but this does not mean that people ‘trust’ it, for the simple reason that the guts of the machine are not understood. ‘Trust’ is placed in the surface myth of ‘freedom=free markets=democracy=freedom’, that is, a deception is trusted, a deception used to mask what is really going on; the exploitative and accelerating extraction of wealth from poor to rich. Ultimately the system is about control and servitude, not ‘money as wealth,’ and works very well for its owners and controllers, but it is also a pyramid scheme in constant need of new debt to maintain momentum and ‘growth.’ This is its fatal flaw.

    The question is this. Can the pyramid scheme be rebooted when it collapses? Or, can ‘We, the Sheeple’ bone up on what is going on quickly enough to reject the reboot when the time comes, and have an alternative in its early stages of operation that can grow up from the detritus and ruin of the old?

  4. Expat

    Osama Bin Laden was a foreigner with valid grievances against the US. We call him a terrorist.

    Wall Street and the Fed have perverted American democracy in a far greater way and done more lasting harm than Bin Laden or any other so-called terrorist. And worse still, they are traitors attacking their own country. When challenged they tell us to shut up like obedient children and stop asking questions; they know what is best.

    Nothing will ever be done against them, that much I know, but frankly, if this were a democracy, we would have rounded up and tried for treason upwards of a thousand financial leaders including Greenspan and Bernanke.

    1. Max424

      “…if this were a democracy, we would have rounded up and tried for treason upwards of a thousand financial leaders…”

      My estimate is upwards of ten thousand financial leaders; but other than this minor quibble, I am in total agreement with the assessments — and the general tenor — of your post.

      “What is treason?” At the Yglesias blog, and elsewhere, I have asked this question dozens of times the last two and a half years, and the question has been met by only mockery, or stone cold silence.

      The conclusion I have drawn, from both these non-responses, and from contemplation of the evil machinations of our modern day body politic, is the answer to the question “What is treason?,” when it is applied to the United States of America, is there is no such thing.

      1. Toby

        In my view the US is lost in a nightmare it has been convinced is a dream. Waking means fully recognizing the nightmare and its terrible multi-decade fallout. There is a dim awareness of nightmarish imprisonment and brutish, warring arrogance, seen from the corner of the eye. The fear from this prevents the needed willingness to change from nucleating. But I suspect the fear won’t hold the illusion together much longer, and when finally the dam bursts, the flood will be terrible.

      2. Fraud Guy

        U.S. Constitution:

        Section 3

        1: Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court.

        Treason is the only crime defined in the Constitution. The reason for that is that, historically, it had been defined by the sovereign to mean whatever suited his interests and whim.

          1. DownSouth

            In view of the suspicions arising against him from the evidence, he is condemned to be tortured for such a length of time as should be seen fit, in order that he might tell the truth. If in the torture he should die or suffer effusion of blood or mutilation, it should not be attributed to the Inquisitors, but to him for not telling the truth.
            ▬Dominican friar Tomás de Torquemada, first Inquisitor-General of Spain

            I hold you in the very bowels of affection for your immense labours in the exhalation of the Catholic faith.
            ▬Pope Alexander VI, in a letter to Tomás de Torquemada

    1. hem haw

      Banks have too much market power, true. Industry concentration is a policy disgrace and the government only increases it. Vertical integration can be another form of market power but when banks reversed vertical integration, they did it so they could work the rules, not to further dominate the market. If you want to control the banks, the real problem is horizontal: size and share. Lop the tall poppies or just let them die, hive off their critical functions. If banks are small enough to fail, we don’t care how they originate loans.

  5. heavyjetcaptain

    “This is a far cry from the intense opposition to Fed transparency just last year from both Treasury and Wall Street.”

    Somewhere along the line, Wall Street realized that (1) credibility no longer matters to the general public and (2) just about anyone who does know what’s going on is benefiting from the criminal scheme and they’re not about to do anything about it.

    As long as the Fed can prop up the market and the sheeple can tell their friends that their 401(k)’s are back to where they were before the collapse in 2008, everyone knows that no matter what happens, the Bernank will simply print more money to make it all better. Indeed, the market rallies on bad news now as well as good news.

    No one seems to care what the Fed has been up to, as long as people can still swipe their ATM cards to buy that $4.00 latte and indulge in whatever mindless entertainment is pushed on the masses. It seems like there is no fact which, if released to the public, would cause an economic crisis.

    Europe is on the verge of collapse; Japan is openly lying to the world about its nuclear crisis and engaging in the same type of market-propping as the United State; the Middle East is falling apart; Inflation is skyrocketing; and the markets–which the masses believe to be a reflection of the real economy–just keep going up. Incredible.

    1. Rex

      “and the markets–which the masses believe to be a reflection of the real economy–just keep going up.”

      The markets (so far) just keep going up, but that phrase in the middle, I think, is BS. I think the masses view the real economy as what is happening for them and it hasn’t been going up for years. To the extent that they are aware of the markets, they probably wonder when their trickle down should be coming.

      But in well established traditions of how to handle bad times, the masses have lots of media that will fill their puzzled heads with scapegoats to blame and hate, that are removed from, or antithetical to, the real bastards.

      That Glenn Beck keeps mentioning Nazis and lies is so ironic. Deliberate?

  6. monday1929

    There is no information that can be released that would rouse Americans to any action, other then pecking out comments on blogs. If it were revealed that Tim Geithner were the spawn of Larry Summers and the Devil, the thinking would be “the devil you know….”, or, “well, somebody had to do something…”

    What information can be revealed that is larger than the results of their Works, which is plain for all to see in Smoldering Japan, the Oiled Gulf, and Fascist Wall Street?

    The Blue Meanies know now that they have nothing to fear from us. Soon, the statute of limitations will pass, and anyone focusing on long ago 2008 will be chided for being backwards looking and anti-progress.

  7. lambert strether

    Bankster CEOs in orange jumpsuits doing the perp walk — that’s the only thing that will restore “confidence.”

    Anything else is just a cost of doing business to elites with impunity.

  8. rps

    The banking cartel was awarded carte blanche by the stewards of government. Privately handed the letters of marque to plunder citizen wealth and yes, be awarded by unlimited taxpayer funds. The privileged cartel live in the gated “reality-based community”. Annointed under the stewardship of Bush, Greenspan, Paulson, Geithner, Bernanke, and Obama. Understand, the Bush administration informed us that our societal constructs (reality/logic) have been altered and henceforth application to all operations will act according to their reality-based view.

    “….guys like me are “in what we call the reality-based community,” which he defined as people who “believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism. He cut me off. “That’s not the way the world really works anymore,” he continued. “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality – judiciously, as you will – we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.” (Without A Doubt, New York Times Magazine, Oct 17, 2004)

  9. rps

    Andrew Jackson’s inaugural addresses and speeches highlight many of the dilemmas we face today. The imperial tenacles of “interested men” who have neither allegiance to country or government. Confiscated power, wealth of nations, and citizens based upon the false claims of financial apocalypse without their IOU’s. Periodic ransom extortations via a flick of a pen. The Federal Reserve was awarded financial stewardship under the canard of currency stabilization. The reality; prescribed destabilization of their miserable IOU’s with manipulated puppetiered strings of inflation/deflation.

    Bank Veto Message-Andrew Jackson-July 10 , 1832
    ….The act before me proposes another gratuity to the holders of the same stock, and in many cases to the same men, of at least seven millions more….It is not our own citizens only who are to receive the bounty of our Government. More than eight millions of the stock of this bank are held by foreigners. By this act the American Republic proposes virtually to make them a present of some millions of dollars.

    Every monopoly and all exclusive privileges are granted at the expense of the public, which ought to receive a fair equivalent. The many millions which this act proposes to bestow on the stockholders of the existing bank must come directly or indirectly out of the earnings of the American people….

    It appears that more than a fourth part of the stock is held by foreigners and the residue is held by a few hundred of our own citizens, chiefly of the richest class.

    Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? The president of the bank has told us that most of the State banks exist by its forbearance. Should its influence become concentered, as it may under the operation of such an act as this, in the hands of a self-elected directory whose interests are identified with those of the foreign stockholders, will there not be cause to tremble for the purity of our elections in peace and for the independence of our country in war? Their power would be great whenever they might choose to exert it; but if this monopoly were regularly renewed every fifteen or twenty years on terms proposed by themselves, they might seldom in peace put forth their strength to influence elections or control the affairs of the nation. But if any private citizen or public functionary should interpose to curtail its powers or prevent a renewal of its privileges, it can not be doubted that he would be made to feel its influence.

    It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes……….

    1. Francois T

      “Every monopoly and all exclusive privileges are granted at the expense of the public, which ought to receive a fair equivalent.”

      Gee! I don’t recall any instance where I heard or read that from any go-vermin official in the last…well, hmmm, 2 decades?

  10. John Merryman

    It reminds me of the intelligence agencies saying they had no warning of what happened in the Middle East. Of course they didn’t. If they had, they would have made sure it got stamped out. The problem is that when the pressure they were assisting in keeping bottled up just got too great for its container and all it finally took was a Tunisian vegetable peddler to blow it up.
    Yes, these bankers and their government enablers think they have everything covered and can squeeze as much as they wish, because they know their various forms of security services will keep everything under control.
    Sooner or later though, there will come that straw that breaks the camels back.

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