Economist: Waterboard the Fed

Stephen C. Webster Raw Story Wednesday, May 27, 2009

The U.S. taxpayer footed the bill for the Federal Reserve to create, then loan, trillions in new U.S. currency to banking and insurance interests in an effort to keep the U.S. economy buoyed. So why won’t they disclose how much was loaned, and to whom?

One economist has perhaps the first plausible road to finding out exactly how the real purse of the United States is managed.

From the Guardian:

The basic story is straightforward. The US Congress has lent more than $700bn, via the Treasury, to bankers at below market interest rates through the troubled assets relief programme, or Tarp. This was to keep the banks from going belly up. At the same time, the Fed has lent more than $2 trillion to banks and non-financial institutions to maintain liquidity in the financial system.

The congressional oversight panel, led by Elizabeth Warren, has frequently complained that the Treasury has not always been altogether forthcoming in providing information about its lending practices under the Tarp. However, there is at least a public paper trail. We can find out how much money each bank received and under what terms.

By contrast, there is no public paper trail for the Fed’s loans, even though it has more than three times as much money outstanding as does the Treasury through the Tarp. The Fed has only provided aggregate information on the amount of loans in each of its various lending programs, and general information on the terms of the loans and the types of collateral received.

However, it is not possible to find out in detail how much money Goldman Sachs borrowed, for example, at what interest rate, and which assets it posted as collateral. The Fed has explicitly refused to make information about specific borrowers public. In fact, the inspector general who has the responsibility for overseeing the Fed told congress that she does not have this information. Apparently the Fed doesn’t even trust its inspector general with information on its lending practices.

You should really read the rest of that editorial.

And while waterboarding is, of course, used here as a rhetorical device, finding out just what exactly is happening at the center of America’s economic vortex seems like a reasonable enough proposal. An effort led by Rep. Ron Paul (R-TX) already has 179 co-sponsors in the House, a majority of them Republican. But given the potential for partisan pushback, its passage is by no means assured.

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