In a crushing blow against the Fed and the banks that own it, in this case represented by the Clearing House Association, the Supreme Court rejected an industry appeal set forth by the CHA, that sought to keep critical bailout data from going public. The lawsuit was originally started by the great and late Mark Pittman, who tragically passed away around Thanksgiving 2009: we are confident we would be delighted to learn that his unprecedented act of suing the Fed in order to generate more transparency has finally succeeded.
The justices today left intact a court order that gives the Fed five days to release the records, sought by Bloomberg News’s parent company, Bloomberg LP. The Clearing House Association LLC, a group of the nation’s largest commercial banks, had asked the Supreme Court to intervene.
The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed’s unprecedented $3.5 trillion effort to stem the 2008 financial panic.
“I can’t recall that the Fed was ever sued and forced to release information” in its 98-year history, said Allan H. Meltzer, the author of three books on the U.S central bank and a professor at Carnegie Mellon University in Pittsburgh.
Under the trial judge’s order, the Fed must reveal 231 pages of documents related to borrowers in April and May 2008, along with loan amounts. News Corp.’s Fox News is pressing a bid for 6,186 pages of similar information on loans made from August 2007 to November 2008.
The records were originally requested under FOIA, which allows citizens access to government papers, by the late Bloomberg News reporter Mark Pittman.
As a financial crisis developed in 2007, “The Federal Reserve forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny,” said Matthew Winkler, editor in chief of Bloomberg News. “The Fed must be accountable to Congress, especially in disclosing what it does with the people’s money.”
The Clearing House Association contended that Bloomberg was seeking an unprecedented disclosure that might dissuade banks from accepting emergency loans in the future.
“Disclosure of this information threatens to harm the borrowing banks by allowing the public to observe their borrowing patterns during the recent financial crisis and draw inferences -- whether justified or not -- about their current financial conditions,” the group said in its appeal.
Bloomberg News editor in chief released the following statement following the Supreme Court disclousre:
Statement by Bloomberg News Editor in Chief Matthew Winkler:
"At some point long before the credit markets seized up in 2007, financial markets collapsed and the economy plunged into the worst recession since the 1930s, the Federal Reserve forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny. As only Congress has the constitutional power to coin money, Congress delegates that power to the Fed and the Fed must be accountable to Congress, especially in disclosing what it does with the people's money."
And while this is a stark example that promises of Mutual Assured Destruction if the Fed and its superiors on Wall Street do not get their way are nothing but hollow threats, the bigger issue here is that the Supreme Court indeed did not grant an appeal. This simply means that banks have gotten so reliant on excess reserves and not having to worry about discount window borrowings that any change from the equilibrium, read an end to QE2 or, heaven forbid, a reversal (where the Fed proceeds to sell securities on its balance sheet), would lead to true untold destruction within the banker community once the Discount Window route is required again.
Nonetheless, today's development a huge success for all those who believe that the most dangerous and thoroughly unsupervised organization of central planners in the world is not immune from justice. We can only hope that the "Pittman precedent" forces millions more to send in FOIA requests for any and every aspect of Fed operations, forcing the US politburo to eventually brings its decision making process in the open, as much as Jamie Dimon and Lloyd Blankfein detest that.