Texas Representative Ron Paul is routinely painted as fringe, or a lunatic, at least in part for his long-standing call to audit the Federal Reserve. As the financial crisis of 2008 – 2009 played out, a compliant liberal mainstream media was all too happy to carry the Democrat’s water, making the seemingly Bush-aligned Goldman Sachs a major villain as the crisis unfolded, putting their name, as well as others, in the headlines everyday. It’s only now, due to new legislation, that Americans are just beginning to get a glimpse inside the high-stakes poker game in which America’s fortune and future was and is routinely being gambled, or spent. It turns out that far more of it than ever thought was being sent abroad.
Yet, even now, one has to turn to the Financial Times for one of the more candid assessments of what really went on and how much remains unknown.
Sunlight shows cracks in crisis rescue storyWhen it comes to state secrets during war, or in the pursuit and detention of terrorists, outlets such as the New York Times routinely demonstrate no end of curiosity, or lack of belief in American’s right to know; however, when it comes to the life’s blood of capitalism and, in effect, our American democracy, it somewhat appears as if they have little interest in all the facts being known. One is hard pressed to find calls for even greater transparency in the American press, the sort of transparency the Financial Times points out as critical to fully understanding what’s at stake - and perhaps still at risk behind the veil shrouded world of American high finance.
It took two years, a hard-fought lawsuit, and an act of Congress, but finally on Wednesday, the Federal Reserve disclosed the details of its financial crisis lending programmes. The initial reactions were shock at the breadth of lending, particularly to foreign firms. But the details paint a bleaker, earlier, and even more disturbing picture. They also highlight new tensions over high-tech transparency, echoing the controversy of the WikiLeaks cables, unveiled just days earlier.
Almost immediately analysts and bloggers sifting through the data honed in on Fed lending to non-US banks, particularly multibillion-dollar loans in October 2008 to Barclays of the UK, UBS of Switzerland, Dexia of Belgium, and several German banks. It didn’t take long to spot the $11.5bn loan to Royal Bank of Scotland, on October 9, 2008. It was the largest to date. Then the loans got even bigger.Even now, on any given day, one is more likely to read about Ben Bernanke’s efforts to limit transparency, refusing to acknowledge the American taxpayer’s right to know, while what has already been revealed suggests Bernanke himself may have been less than candid, most likely including in testimony before Congress. Given that so many Americans continue to feel the pinch of their government’s past economic transgressions, spurring much of this calamity through now dubious housing legislation, it would be a positive development for the American media to demonstrate just half the curiosity they’ve demonstrated when it comes to where every captured terrorist in the world my have been held, or treated, over time.
Fed officials have claimed they did not know of the need for large-scale intervention in the financial markets until autumn 2008. Ben Bernanke, Fed chair, also testified that “The only way we could have saved Lehman would have been by breaking the law.” Yet the Fed’s new spreadsheets belie these claims. The data show the Fed was lending prolifically abroad in 2007, and then domestically, to investment banks – including Lehman – in early 2008.
This has been a big week for transparency. But whereas the WikiLeaks cables may have revealed too much, the Fed’s new data have revealed too little. We know now the Fed acted earlier, and with wider scope, than was previously understood. But without more detail about collateral, the case for its actions can still not be properly judged. Nevertheless, even these incomplete disclosures suggest that perhaps, during the next crisis, Fed officials will think more carefully about making loans they know will see the light of day. As US supreme court justice Louis Brandeis noted, sunlight is the best of disinfectants.
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