Tuesday, January 13, 2009, 1/13/2009 09:12:00 AM

The Trade Secrets of the Use of TARP Funds

By Todd
$350 billion has essentially been sent from the United States to banks of all shapes and sizes. The theory of the investments was that the government was going to provide banks liquidity that they could use to lend money and get our economy going again. Congresspeople, especially Barney Frank, have been making noise about learning how that liquidity is being used and has been used. Banks are keeping a tight seal on identifying their use of these dollars. Which raises a question: are banks entitled, on trade secrets grounds, to withhold from the government regulators or muckety-mucks what they've done with their TARP funds?

In this editorial from iStockAnalyst the argument is a clear "yes." Banks have a competitive interest, this editorial argues, in keeping its use of bank assets secret. The editorial argues that disclosure equals loss of competitive advantage. Now, we're not suggesting that the level of analysis in this editorial is sufficient to exhaust the topic - but we wanted to advise our readers of a topic that is sure to recur in the future. Barney Frank doesn't appear to be going away - and he's suggesting that answers to these questions will be demanded.

Remember, too, that the Fed itself has argued on trade secrets grounds that IT doesn't have to disclose how IT has used the TARP funds: http://www.dailyreckoning.com/Writers/Mogambo/DREssays/MG010609.html. Hell, if the government, which doesn't have much competition in what it does, has a valid trade secrets argument - why wouldn't a bank which DOES have a bunch of active competitors?

We're keeping an eye on this issue for you.

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