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The Deflating (Bursting?) Fed Secrecy Bubble
- AIG
- American International Group
- Bank Failures
- Bank of New York
- Citigroup
- Counterparties
- Darrell Issa
- Edolphus Towns
- Federal Deposit Insurance Corporation
- Federal Reserve
- Federal Reserve Bank
- Federal Reserve Bank of New York
- FOIA
- Freedom of Information Act
- Neil Barofsky
- New York Fed
- Securities and Exchange Commission
- Tim Geithner
- Timothy Geithner
- Wachovia
- WaMu
- Washington Mutual
A central feature buttressing myriad defenses to the more opaque practices implicit in Federal Reserve secrecy has always been the importance of maintaining "the independence of the Federal Reserve". Recent developments, with respect to the Federal Reserve's "clandestine service directorate" now give us cause to respond to this rationale with a resounding: "Shenanigans!"
Consider a bit of history. Washington Mutual history to be precise. In the first instance, it is difficult for us to credit as "independent" an organization (in this case the Federal Reserve Bank of New York) whose head (in this case, Timothy Geithner) took it upon himself to assert and execute what he purported to be policy of, not just the Executive Branch of the United States, but the entire government of the United States, in connection with the impending failure of Washington Mutual. Two months ago we pointed this out obliquely:
Of course, Citigroup didn't buy Wachovia. In the pre-bailout world, when a bank fails, it fails like Washington Mutual. The regulators (FDIC most likely) take over, they wipe out equity and bondholders and then sell the remains. It's quick. It's brutal. It's decisive. This is what Bair apparently proposed. Enter New York Fed President Tim Geithner (as characterized by David Wessel):
Geithner blew up. Wachovia has to open on Monday, he argued. It must be sold this weekend, the buyer needs government assistance, and the debt holders need to be protected. "It has to be this way," he said. "We just went to Congress for $700 billion. The policy of the U.S. government is that there will be no more WaMus."1
Wachovia, instead, was declared "systemically important" a first since that term was written into law, and auctioned off whole. You know the rest.
This brings up several questions:
- What is the head of the "independent " Federal Reserve Bank of New York doing articulating, much less implementing U.S. Government policy with respect to bank failures by picking and choosing which failures will be permitted and which will not based, it would seem, on purely political considerations and "optics"?
- What is the head of the "independent " Federal Reserve Bank of New York doing giving the FDIC marching orders based on, it would seem, political considerations and optics?
- To the extent this was an exercise of the "regulatory powers" of the Federal Reserve (such as they were with respect to WaMu), how does one reconcile this with the FDIC's belief (in the form of Shelia Bair) that the Federal Reserve Bank of New York was overstepping bounds?
- Even assuming this was a legitimate exercise of regulatory powers, how can such a regulator be "independent?"
- How can one answer #4 above without doing so in the context of what would seem to be a very political (read: arbitrary and capricious) decision on WaMu by Geithner?
However you answer these questions, it seems clear that, in this case, "Fed independence" is in the eye of the beholder. But what happens to this question when you add revelations that the head of the Federal Reserve Bank of New York presides over an organization that also seems to be dictating what certain publicly held firms will (or, perhaps more aptly, will not) disclose in SEC filings?
To answer our own question, in our view any semblance of "Fed Independence" is washed away when these sorts of revelations come to light. Whatever reasons may be offered to justify the secrecy of the Federal Reserve, we believe these incidents (and probably many others) strip the veneer of legitimacy from that position. And it seems, today, we are not alone. To wit. Bloomberg:
Edolphus Towns, chairman of the House Oversight and Government Reform Committee, said he will issue today a subpoena to the Federal Reserve Bank of New York for documents related to American International Group Inc. “This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout,” Towns said in an e-mailed statement.
And Dow Jones:
A U.S. House panel issued a subpoena for Federal Reserve Bank of New York documents Tuesday as lawmakers continued to press for details about the government's rescue of American International Group Inc. (AIG). Rep. Edolphus Towns (D., N.Y.), who chairs the House Committee on Oversight and Government Reform, said in a statement that he was issuing a subpoena that would provide lawmakers "with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout." The demand for documents comes amid increased scrutiny of the regional Fed bank's role in ensuring that AIG's counterparties on some $62 billion in bets on soured mortgage securities were paid off in full in late 2008. Documents recently released by Rep. Darrell Issa (R., Calif.) show officials at the regional Fed bank told AIG not to disclose key details of their agreements with the insurer's counterparties in late 2008. The names of the counterparties were eventually released last year as a result of congressional pressure. AIG also had to amend its regulatory filings several times and provide the information after the Securities and Exchange Commission requested more disclosure. Issa's office has sought to tie Treasury Secretary Timothy Geithner to the disclosure flap, but the Treasury has insisted that Geithner, who was president of the New York Fed at the time, had no role in the disclosure decisions. That argument has been backed up by New York Fed General Counsel Thomas Baxter Jr., who said in a letter to Issa sent last week that Geithner "played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those e-mails." Both Geithner and Baxter have been invited to appear later this month before the Oversight panel at a hearing on the AIG matter.
Yes, it is probably about time.
Update:
Issa's office released a letter sent Tuesday to Issa by Neil Barofsky, the special inspector general for the government's $700 billion rescue plan. The letter said the Fed had denied a request to release to lawmakers AIG-related documents held by Barofsky's office. Barofsky said in the letter that "the Federal Reserve has directed us not to provide you with the documents that it has provided to us, and that it will instead respond to your request directly."
Regular Zero Hedge readers might be forgiven for wondering how many documents have been turned over to the Inspector General in order to shield them from FOIA or discovery disclosure under statuatory exceptions to same.
- 1. "In Fed We Trust," Wessel, David.
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Actually I think we need to have a very public discussion on just what constitutes the "greater good". Obviously these yahoos have a misunderstanding of the concept.
So of the folks on Wall Street and Pennsylvania Avenue misread "greater good" and thought that meant "greater greed". This whole deal is a crime! Shame on the FED, FDIC, and the politicians.
Forget the public statements. Get them in the chair, swear them in, and then ask the right questions.
Ned,
Like a regular chair or an electric chair?
If I had stole as much money as these guys did, I would be locked away for life.
I can't believe there is not an AG out there with any balls that can bring this group to justice.
If you had stolen as much as these guys, you'd be one of those guys! There's not that much left to steal.
Not to mention you would surely have eneough money to buy off any AG in the country with balls.
Ned - After my experiences I would be most interested to see a complete set of all disclosures by the fed and its various regional banks and have time to do a complete comparative analysis. It has been my experience that when dealing with issues of this potential weight that over time one will often discover variances within the same historical record as disclosed to third parties. I would hope this direction is being pursued...
This obfuscation is sickening - and so obvious. They [The Fed - Geithner, et al] are hiding corruption of so many stripes... turns my stomach.
Thanks for the vigilance and cast-iron stomach, Marla.
i.
+1
+1
+1
+1 (not that I'm a conformist)
+2
;-)
Is it not interesting that the two most obvious Hill Committees, Senate Banking and House Financial Services have not pursued this issue? The Fed and The SEC are locked-in to both, which is why real reform is a joke.
Issa is the real force behind this effort as Towns and Issa are frequently at odds with each other.
POWER! POWER! ...are all my powers so small?
wamu was hijacked
they didnt fail
bingo, jpm, didn't save wamu, wamu, saved jpm.
Unfortunately there isn't enough wamu's left to fill shamu's belly any more. The whale's going to croak.
Wachovia pick-a-pay portfolio causing havok in Wells' belly. It just keeps coming up over and over and over like a bad burrito.
Unedited version fresh from the AIG printer floor, after some lawyer edited it, but acting on his own, mind you, not as result of anything Timmah said, since he was busy praying in seclusion, preparing himself spiritually for his new calling as Treasury Secretary:
"Geithner blew up after getting his a** reamed by his bosses. My orders are clear: Wachovia has to open on Monday, he blubbered in fright . It must be sold this weekend, Wells Fargo demands that someone foot the bill , and there is no way in hell the bondholders can lose a dime on this. "It has to be this way," he said. "We just went to Congress for $700 billion and can you believce those stupid sh*theads fell for it?. The policy of the Federal Reserve is that there will be no more disobedience of our orders ."1
Any idea as to why the crooks are letting the stock market "collapse" today?
By "collapse" you mean 1%, right?
You have no flair for drama!!! LOL
The PPT mob is looting the gold market today, THEY'RE ON THE RUN
Marla, you think these guys are on To Tell The Truth? (in cheeky's honor) FFS! And I honor you Ned!
It surprises me that with the level of education these Americans have.. that they haven't understood that there really isn't too much more that can be milked
cue Underdog theme:
'HERE THEY COME TO PAINT THE TAPE'
Mighty Mouse theme, FYI.
So, what happened with the Bloomberg Freedom of Info Act to get Fed bailout list? Fed stalling since Dec, 2008. Was supposed to happen yesterday..was a story in Bloomberg yesterday.....Today?.there is nothing....nada, not even in BBerg....wassupwitdat?
Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York)
This is getting interesting...but hey, they made 48 Billion out of 1.7 Trill...What A Thrill!
Its before the court of appeals 2nd district. They must be hemming and hawing over a decision.
oral arguments were yesterday....reuters had a decent piece on it.
my reading was that some of the judges were not terribly impressed at all by the Fed's argument that the world will end if the case does not go their way.
we've heard that "the world will end" argument before and every time it's paraded out I am less and less impressed by the supposed "genius" of those inside the Fed.
Since when does that argument, coupled with a lot of whining and wringing of hands, have any merit in a court of law?
I saw they get paraded out in public on their way to the guillotine!
Saying; "The world is going to end" is like saying; "It's a matter of national security". Both have lost a good deal of meaning lately.
+1
it's a matter of national insecurity. It's really getting harder to listen to these people. Some kind of podium boy who cried wolf line has been crossed and I don't trust a single word they say...even when they're telling the truth.
Marla,
Great forensic.
'How does one reconcile this with the FDIC's belief (in the form of Shelia Bair) that the Federal Reserve Bank of New York was overstepping bounds?'
Ya think Sheila pushed this leak?
New York Post
Last updated: 1:47 am
April 8, 2009
By MARK DeCAMBRE
The stress tests the government are about to conduct on some of the nation's largest banks is being blasted by insiders at Sheila Bair's Federal Deposit Insurance Corp., who say it's a pointless exercise that's more sizzle than steak.
The FDIC's basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.
The tests are conducted by the Treasury Department and the Federal Reserve on the nation's 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase.
"It's a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn't actually work.
Marla....
Are there any studies that would point out where the current economy would be had all the failed banks actually failed ? And there was never a Fed rescue plan ?
Some small amount of reality is what we would have, rather than this total and complete fantasy land mutation of the post world war(s) global economy which was (and is) designed to maintain our preparedness for current and future wars while allowing for power consolidation above the "elected" government.
It's very simple if you are honest with yourself.
This is another in along list of examples of what's wrong with the system and this adminstration in particular. But nothing is going to change until we get some judges involved.
How about the $100 billion (may have been some other very large number) that Chase 'injected into the system' the day after Lehman went under and then they were 'paid back' by the Fed.
This was reported in the news by yahoo and bloomberg and then any bit of information about it was removed.
This was asked about at a discussion of banks that was given by William K Black also so I'm not the only one who saw it.
These people play with our money like its their money.
I have this funny feeling that says the term "independent" means "independent of Congress."
You always have to achieve independance from something you are dictating to. You can't be an uncaring unfeeling sociopath without this independance. It's the eternal struggle to conform everyone while not allowing anyone to conform you that leads to power and abuse.
If the fur flies enough, Tim Geithner's going to be blamed within the Fed itself. One thing about a bureaucracy: someone can be put in the bad books by pegging him/her as too ambitious. If the Fed's pinked, then word will spread that Timbo compromised institutional independence because he hankered too much after the Treasury Secretary's job.
Yep, it looks like "Trader Tim" is going to be plopped under the bus he traded up from.
Tim Geitner and Ben Bernanke are the 2 chairs for the USofAssholia's chair in the IMF. This is just a day job for them. They are really working for the indebt, scam and rippoff IMF by using the CIA to install dictators, load the country up with debt. Remove the dictator set up a free government. KEEPing the crusing debts of the dictators on the books. You can have freedom after you are enslaved.
Timmah and Bennie can get kicked the hell out of the FED and it won't change their job function of what they are trying to create in the world. It will only change who they are fucking over at the current moment. Of course if the CIA and NSA and corrupted portions of the FBI and Jusitice Department are kicked the hell out of the country while they are off doing thier day job it becomes more difficult for them to achieve the job goals.
+1
Just follow the money trail and it answers some of the biggest questions.
During yesterday’s hearing, the appeals court judges asked about the “staleness” of the information Bloomberg seeks. [Bloomberg lawyer Thomas] Golden said the information would concern banks that got help from the Fed from about November 2007 to May 2008.
“This court has nothing in the record to say whether this information is stale now or not,” said Robert J. Giuffra Jr., a lawyer for the Clearing House at Sullivan & Cromwell LLP in New York. “Banks will not use the discount window if they know the information will be available in, say, 20 days.”
http://www.blooomberg.com/apps/news?pid=20601087&sid=apOGA_joTmYc&pos=7
The Fed's entire premise for secrecy is always based on what "would" or "will" happen. It'd be refreshing to review the Fed's forecasting record to assess the strength of this premise. If I recall, sub-prime was going to be contained, there was no housing bubble, etc.
Can the Fed point to even one prediction it got right?
Wachovia CEO, Bob Steel, who came from the Treasury Department and Goldman Sachs, bought $16 million of Wachovia stock......of course Wachovia was declared "systemically important" by Timay.
Can't have failure with that type of pedigree.
independence is in the eye of the beholder, bondholder, and stockholder
"NEW YORK (CNNMoney.com) -- The House Oversight Committee will issue subpoenas Tuesday to the Federal Reserve Bank of New York to get its correspondence with rescued insurer American International Group."
CNN Money:
http://money.cnn.com/2010/01/12/news/economy/aig_subpoenas/
I am surprised that Timmy Geithner hasn't had his ass beat yet- he's easy to pick out in a crowd *
*not that I condone such uncivilized behavior
Marla....I thoroughly enjoyed this piece and consider it one of your finest and that is saying a ton. Thank you very much for your work and please keep the hits coming.
WaMu was the biggest bank heist in history. JPMorgan colluded with the incompetent Shiela Bair to take it down. They are scum-sucking thiefs. Luckily, the lawyers for WMI are going for the jugular (spending over $65 million per month digging up the facts) and have requested that the court allow them to subpoena all docs (emails/presentations/mtg notes, etc) re WaMu from all parties having anything to do with Wamu in 2008. The results will be eye opening!
The facts so far:
http://www.portfolio.com/industry-news/banking-finance/2009/12/07/why-fe...
&
http://www.portfolio.com/industry-news/banking-finance/2009/12/28/what-a...
&
http://www.thestreet.com/story/10654336/1/a-financial-scandal-for-2010.html
WaMu was an Hours d' oeuvre....
Re: Update
Fed is using the Janet Reno defense. Start an "investigation" thereby preventing discovery or comment. Let the investigation lag for yours. MSM will not ask about it. If they ever do, announce it is a) still on-going and in a sensitive phase so you cannot comment, b) decry it as "old news", or c) denounce the reporter as a member of the VRWC and watch MSM scamper back to their corner with tail tucked between their legs.
Works every time (that it is tried by a Democratic administration).
Holy Crap, did you guys declare Shenanigans!
Gotta go home and get my Broom.
Her declaration of Shenanigans is just
WWRPD?
what would ron paul do?
The time for begging our government to protect us from these banking oligarchs is just OVER.
They wont, and they CAN'T, because as Dick Durbin says of the banks---"They own this place"
It is time to ACT - Time to STARVE THIS BEAST that is looting our nation blind, day after day! Our government has been captured by it, and is powerless to stop it.
The consumer is 70% of the Economy. POWER to the PEOPLE---Take it back!
David Wessel's book, "In Fed We Trust", gives numerous examples of either the Treasury or The Fed handing out billions under the wink and legal nod of 'preventiing sytematic failure'. (It would have been illegal otherwise.) The blowback from Lehman's bankruptcy scared the hell out of everyone so there was no way Bernanke, Paulson or Gethner were going to let even bigger firms fail.
I highly recommend this very readable, lightening fast book if you want to feel like a fly on the Fed's wall during the meltdown.
David Wessel's book, "In Fed We Trust", gives numerous examples of either the Treasury or The Fed handing out billions under the wink and legal nod of 'preventiing sytematic failure'. (It would have been illegal otherwise.) The blowback from Lehman's bankruptcy scared the hell out of everyone so there was no way Bernanke, Paulson or Gethner were going to let even bigger firms fail.
I highly recommend this very readable, lightening fast book if you want to feel like a fly on the Fed's wall during the meltdown.
I find the term "Shenanigans" mildly whimsical, but completely underwhelming--
These are nothing less than MASSIVE CRIMES being committed against this country and the people of it.
We are being LOOTED blind, and our government is literally powerless to stop the theft, because they are captured and effectively OWNED by the banking cabal.
What can be done?
GREAT reporting as usual, ZH.
You give us hope that this giant ponzi scheme will finally be someday exposed and the banking cartel leaders and players jailed. They will be jailed, because they will ultimately realize that it is the safest place for them to be. I do think that day is getting closer.
I just need to know one thing...is Neil Barofsky a human, an alien or a driod? That will clear up alot. Thanks.
You've hit the nail on the head here. The Fed is not independent, period. But actually, what is more important is that the government is dependent ON THE FED. The fed called the shots and the government caved. That is the history of the bailout. Our government was basically threatened into giving the banks what they wanted by the Fed and Paulson, then later Geithner. In other words, the Fed is now the Fourth and dominant branch of government. Nothing more and nothing less. And they are acting in the interests of the banks, who are their brethren. This is sickening. --Boris
question #6, assuming this was an exercise of the 'regulatory powers' of the FRBNY and that tiny tim testified under oath at his confirmation hearing "First of all, I've never been a regulator...I'm not a regulator.", would this not be a clear statement of perjury on his part?
this seems simple enough for even a congressperson to understand.
this kind of thing will go on and on until we the people get off our fat asses and take our country back
You go Marla!
ABOLISH THE FED!
Just a few years ago people would laugh you out of the room for claiming a secret cabal of bankers ran the world.
Now, rub their noses in it and hope they can remember it longer than last time.