Thursday, September 03, 2009, 9/03/2009 02:38:00 PM

Federal Reserve Fighting FOIA Case With Trade Secret Jargon a Federal Judge Ain't Buying

By Todd

While not technically a straight-down-the-line trade secrets discussion, we find the recent piece in The Atlantic by Daniel Indiviglio quite interesting. He is reporting about the Fed's stringent opposition to releasing information about which banks received emergency funding in the FOIA case known as Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York. Chief U.S. District Judge Loretta Preska said on Aug. 24 that the Fed had until Aug. 31 to disclose daily reports on borrowing by banks and other financial institutions. The Fed wants Judge Preska's ruling stayed until it can appeal its case to the United States Court of Appeals for the Second Circuit.

Mr. Indiviglio picks up from there:

"First, what's the Fed's argument for keeping this information secret? Bloomberg explains the Fed's reasoning given to the judge:

Preska's Aug. 24 ruling rejected the Fed's argument that the records should remain private because they are trade secrets and would scare customers into pulling their deposits.

The trade secret argument seems a bit of a stretch. Are there really banks out there claiming that the secret to their success is getting loans from the Federal Reserve? That seems highly unlikely.

The other argument, however, is relevant and important. I see it as the crux of the Fed's case. Let's imagine your bank needed an emergency loan from the Federal Reserve. Currently, you'd never find out, since it's secret. But if the Fed ultimately loses the case, then imagine if its emergency loan balance listing by bank became published daily for public consumption. You could see your bank on there. That might, and probably should, cause some alarm to those banks' customers.

The Fed's argument is essentially that disclosing this information will cause bank panics. Ignorance is bliss. If people never find out about these loans, then assuming the bank pays it back, everything will turn out fine. Why scare the public for no reason?

I get that argument. I'm even sympathetic to it. It still bothers me. I don't need to know if my bank got a loan from Goldman Sachs, but since the Fed is a lender of last resort, that means something much different. As a shareholder of the bank, I'd probably want this information too."

This is a fascinating topic and discussion. At this blog, one of the authors (Sullivan - er, me) is a libertarian. We are watching this case and Representative Ron Paul's "Federal Reserve Transparency Act of 2009" bill with much interest. More as we learn more.


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