So if the fed were forced to reveal the banks in question it could cause a modern run on those banks. Of course, it will depend greatly on how the media handles it.

http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article6816408.ece

I suspect that given the real state of things the Fed is probably doing everything which reasonably can be done to hold chaos at bay, in the hope that businessmen’s animal spirits will revive and consumers will disregard their precarious hold on survival and plunge into a new round of spending, buying houses even at these still inflated prices and cars without modest taxpayer bribes attached. As for the value of a dollar, it ultimately will have to decline even more than it did between 1973 and 1982 (by about 50% and perhaps more) to permit the whole game to continue playing out for as long as climate change permits. If there is a problem with this not all that rosy scenario, it is not lack of transparency at the Fed, but rather immense usury engendered consumer debt and relentless downward pressure on wages resulting from globalization. Nevertheless, one ought to at least consider that perhaps we really have no choice but to try, since the alternative seems to be giving new powers to a whole new crowd of demagogues who have not yet even been identified, except to some extent on the web.

This clause was the basis for the Fed bailout of the investment firm Bear-Stearns and the insurance company AIG. Hertzel reports ( FRB Richmond-Economic Quarterly Vol 95-No 2 ,Spring 2009 p190.) this clause was inserted in the Federal Reserve Act of 1913 in response to a populist cry from House Speaker John Nancy Garner, Roosevelt’s choice for vice-presidential running mate. During a congressional debate he and a fellow Texas Democrat declared “I plead with you to let all of the people have some drippings..”.

It is ironic that a populist provision turns out to be another gateway for Wall Street to tap the public coffers.

Fine, but Paul’s agreement is likely disingenuous. I see this quickly evolving into a push for instantaneous information. Ultimately, Paul’s oft-stated goal is to see the Fed destroyed, not ‘fixed’. Likely he sees this as a way to mine information that he thinks will cause politically useful levels of outrage toward the Fed.

“This only weakens the incentives for bank managers to run their companies prudently. Knowing that the Fed will bail me out in times of trouble already creates moral hazard. Knowing that they will bail me out without even my shareholders ever knowing only increases the moral hazard. Where does this stop?”

But then the incentives become for managers to run their banks imprudently right up until the point where a bailout becomes unavoidable, at much greater cost. There will be plenty of managers that will choose to cross their fingers and hope for the best rather than tell their shareholders (let alone the public) that they’re going through (or even went through ‘several months’ ago) a period of distress. We do not want them taking that kind of chance.

Remember, the discount window is not necessarily a “bailout” window; it’s about covering temporary liquidity problems and helping _viable_ institutions get through a tough couple days. And this is not a money-losing operation for the Fed.

http://www.sec.gov/foia/nfoia.htm

At least 1 could serve as a basis for refusal to release information:

- Contained in or related to examination, operating, or condition reports about financial institutions that the SEC regulates or supervises;

Those banks that are publicly traded may fall under this exemption… But the Fed doesn’t seem to be making that argument. They are making a broad public interest argument:

The Fed might be able to make other (more reaching) arguments. “Our argument is that the public interest in disclosure outweighs the banks’ interest in secrecy,” Perhaps they are aiming to protect banks that are not publicly traded as well…

It’s hard to see how they ever expected that to hold up against FOIA. I’d guess the Fed is simply trying to delay until the crisis has passed enough that the information is no longer as dangerous. Hence the irrevocable harm claim to delay until after appeal, and the note that it will take time to scour NY Fed for records…

But if the Fed is simply delaying, that’s not necessarily unreasonable. FOIA primarily exists to allow oversight of government. Oversight can be retrospective (within reason). A 2 year delay would not destroy democracy – Bernanke would still be in office (apparently) and the Fed would still be subject to reprimand and restructuring.

On the public side, consider the following: what benefit do we get from releasing the records NOW instead of 6 to 12 months from now? Not much… the damage is already done, and the Fed isn’t doing much more damage. The harm, however, could be “irreparable”. So the Fed’s argument seem to be on shaky legal ground, but I can’t say I disagree that there is little harm to delaying the release and significant potential harm to immediate release.

The arguments for _immediate_ release seem largely political – that we want to use this information to rally the public against the Fed while the public’s (notoriously short) attention span is still focused on the financial crisis.

Or am I missing something?