History's biggest bailout needs disclosure

Last week the government dispatched more of your money into the abyss. Through its "Term Auction Facility," the Federal Reserve lent banks $63 billion - nearly half the cost of the entire savings and loan bailout from the 1980s, or what it takes to fight in Iraq for six months.

Who got the money? At what rates? What collateral did they put up? How will the proceeds be spent?


The Fed isn't saying, and it's fighting attempts to shed light. The Treasury Department, distributing its own bailout billions, is almost as clammed up.

Never has the country spent so much taxpayer money, so quickly, with so little disclosure. The bailout blackout threatens to match the information failure over mortgages and derivatives that caused this mess in the first place.


Obscurity and lack of accountability have followed the rescue from its start.

The Bush administration's initial proposal, in late September, required only semiannual reports to Congress and made a stunning attempt to exempt bailout actions from review "by any court of law or any administrative agency."

The final result isn't much better. Two weeks ago the Government Accountability Office found that Treasury hadn't yet issued final rules on conflicts of interest, hadn't set up communication lines with Congress, hadn't established a corporate reporting process, and hadn't fully ensured that taxpayer dough isn't financing executive pay and shareholder dividends.

More than $300 billion has already gone out the door.

There is "a heightened risk that the interests of the government and taxpayers may not be fully protected," the GAO said, with typical understatement.

The Treasury fund, the "Troubled Asset Relief Program," was supposed to be spent on soured mortgage bonds. It wasn't. Instead, a throwaway sentence in the TARP bill authorized Treasury Secretary Henry Paulson to throw money at "any other financial instrument" he deemed necessary. So the money is buying bank preferred stock, automobile-maker loans and whatnot.

The Associated Press asked 21 banking companies, each receiving at least $1 billion, what became of the money. Not one would say.

Treasury's program is floodlit transparency compared with the Federal Reserve's. Not needing Congress' approval, Fed Chairman Ben Bernanke gave himself what Paulson originally wanted: nearly unlimited authority to launch public funds into the economy.


At least in the TARP you know who's getting the money. The Fed doesn't even publish a list of recipients. The $2 trillion in allocations so far from the various Fed bailout programs is more than twice the size of the $700 billion TARP. Two trillion dollars is enough to pay every American household $15,000.

"Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting," Bernanke told Congress recently. "We think that's counterproductive."

Bloomberg News didn't just ask for the names and other information. It sued in federal court to get the Fed to fulfill its obligations under the Freedom of Information Act to let the public know what government is doing. Bloomberg reporter Mark Pittman has been unsuccessfully trying to get basic Fed bailout information since May.

"It became an issue for taxpayers when the Fed not only instituted almost a dozen new emergency lending programs for financial institutions but on top of that began accepting collateral that isn't investment-grade," says Matthew Winkler, Bloomberg's editor-in-chief. "That is a major shift. ... Americans ought to know who's getting the money."

A Fed spokesman referred me to Bernanke's congressional testimony in which he said that revealing names could "create a stigma" for bailout recipients and make them unwilling to partake. But Treasury's name disclosures haven't stopped more than 100 banks from approaching its bailout buffet.

As for the Treasury, bailout honcho Neel Kashkari recently told Congress that "remarkable progress" has been made in addressing the GAO's concerns and that the department is setting up in weeks programs that would ordinarily take many months to implement.


But that's not good enough. The need to make history's biggest bailout visible and grime-free is just as urgent as the need to revive the economy.

Openness fights corruption. Openness trumps cynicism. By stimulating debate and knowledge, openness ensures resources are aimed effectively.

This disaster was directly caused by suppressed financial information - a kind of market failure well-known to economists. Borrowers were ignorant of mortgage booby-traps. Investors and rating agencies had no idea how risky mortgage bonds were. Investors thought the secretive Bernard Madoff was a genius.

Now Washington is making the same mistake.

"Popular government, without popular information, or the means of acquiring it, is but a prologue to a farce or a tragedy," wrote James Madison, godfather of the First Amendment.

Don't just take his word for it.


"A more transparent policy process," Bernanke told the Senate Banking Committee at his 2005 confirmation hearing, "increases democratic accountability."