Imagine, for a moment, that someone hits you up for a hefty business loan. “What kind of collateral am I getting?” you ask.
“Can’t tell you, but you might get your money back eventually. Or maybe not.”
“Exactly where is this money going?” “Can’t give you those specifics. But trust me ó it’s money well spent.”
Actually, you don’t have to imagine such a scenario. As a taxpayer, you’re participating in a loan ó or bailout ó program where the initial promises of transparency and disclosure aren’t being followed as massive amounts of money gush into the financial sector.
Credit Bloomberg News with making a valiant effort to fight the Fed and force it to disclose the initial recipients of the $700 billion bailout program and what kind of securities the central bank is accepting on behalf of taxpayers as collateral. In a lawsuit seeking greater disclosure, Bloom- berg, a media company specializing in business news, has asked the courts to require that the Fed provide more details about the loans, which Bloomberg argues fall under the Freedom of Information Act.
This isn’t a theoretical debate. So far, the Fed has committed about $290 billion of the bailout package. But the bailout package approved in October is only part of the problem. Bloomberg contends the Fed hasn’t disclosed adequate information pertaining to another $1.5 trillion in loans made to banks, separate from the bailout legislation. These were given to Citigroup Inc., Goldman Sachs and other financial entities through various government credit and lending programs that were spooled up as global markets began to seize up.
Lack of transparency is only one troublesome aspect of the bailout mechanisms. The Treasury has not yet named a special inspector general to audit the bailout, as the legislation requires. Nor has Congress formed a special oversight panel, as promised, even though we’re already past the deadline for the first preliminary report that was due from the as-yet-unformed committee. A detailed report is due from this panel on Jan. 20 ó and good luck with that.
Now, we’re watching as General Motors pleads for a government loan to help stave off bankruptcy. In this case, taxpayers may at least have a clearer sense of where their money is going, even though buying collateral in acres of unsold trucks and SUVs is hardly a comforting thought.
Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson earlier pledged to comply with congressional demands for transparency. Yet, when Bloomberg pressed for bailout loan details, a Fed spokesman said it was “confidential commercial information” that didn’t fall under Freedom of Information laws.
That’s a stunning stance to take. Lack of transparency and lax regard for traditional lending practices were prime factors in creating this mess. The Fed and the Treasury should be more forthcoming on bailout details, and Congress should ensure that promises of transparency are kept regarding loans already made and the billions yet to be doled out.