Blog on the Run: Reloaded

Thursday, August 27, 2009 8:15 pm

Nice economy you got there. Be a shame if anything happened to it. (cont.)

Filed under: You're doing WHAT with my money?? — Lex @ 8:15 pm
Tags: ,

That’s basically what the banks that have gotten taxpayer bailout money are saying about Bloomberg’s FOIA lawsuit and bills pending in Congress to audit the Federal Reserve:

In a declaration filed in the Bloomberg Case (08-CV-9595, Southern District of New York), the banks demonstrate no shame in attempting to perpetuate the status quo with regard to the Federal Reserve and demand that the wool over the eyes of the general population remain firmly planted in perpetuity.

The [group of tax-receiving banks] submits this declaration because the Court’s Order threatens to impair the ability of our members to access emergency funds through the New York Fed’s Discount Window without suffering the severe competitive harm that public disclosure of their identity will cause.

Our members have accessed the New York Fed’s Discount Window with the understanding that the Fed will not publicly disclose information about their borrowing, especially their identity. Industry experience, including very recent and searing experience, has shown that negative rumors about a bank’s financial condition – even completely unfounded rumors – have caused competitive harm, including bank runs and failures.

Surely transparency would facilitate rumor-mongering to an unprecedented degree. After all rumors spread much easier when everyone knows the true financial condition of banks.

And here, in plain written Times New Roman, you see what racketeering by a major bank consortium looks like:

If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank’s customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls – which would be a natural inference from having tapped emergency funds – has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution’s customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position.

Pardon me if I am a broken record here, but would rumors not spread much less if there was more transparency, if investors and other financial intermediaries were fully aware of the conditions of their counterparties, if banks did not have to cover their billions in reserve losses by pretending they are viable and essentially being constant wards of the state?

I say again: rigged game. Here’s hoping the judge has the good sense to laugh this out of court. And thanks to ZH for keeping this issue in front of us.

UPDATE: In the House, Barney Frank calls their bluff, saying HR 1207 will pass in October, with delays on release of data added so that the info won’t be “market-sensitive” in the way the banks claim to fear. Senate prospects less clear.

Advertisements

Create a free website or blog at WordPress.com.

%d bloggers like this: