Everybody wants a little glasnost,
BankThink took a look at the complaint Bloomberg L.P. filed on Nov. 7 in the U.S. District Court: It demands information on the pricing of the $2 trillion worth of assets banks parked at the Fed as collateral in exchange for emergency loans. Here´s an excerpt:
"To obtain access to this public money and to safeguard the taxpayers´ interests, borrowers are required to post collateral. Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed´s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom."
Bloomberg filed the suit after the Fed refused to respond to its Freedom of Information Act request. A reporter made the FOIA request on May 20, asking for a litany of documents related to the exchange of collateral between banks and the Fed. According to the complaint, the Fed never formally acknowledged the request.
"The Fed used to get sued a lot-not just for FOIA but for bank holding company applications and other issues," said Gil Schwartz, a partner at Schwartz and Ballen, LLP and a former Fed lawyer. "Over the years it became very clear that they have a good legal staff, good litigators, and most people just gave up."
Mr. Schwartz said the request for information on the types of collateral banks posted and the methods the Fed used to price it was innocuous -- up to a point.
"The issue of what kinds of haircuts the Fed is giving for what kinds of collateral, to the extent that it´s not publicly available could be arguable-there´s no harm to any particular institution for people to know if they put up a certain kind of mortgage-backed security this is the face value they may get," he said.
But more detail could end up revealing different banks´ strategies for navigating the credit crisis.
"It´s another thing to say institutions have put up this amount of collateral and that amount of collateral."
And getting the names of banks posting the collateral would definitely be out of the question.
Mr. Schwartz added that Bloomberg´s endeavor was an expensive one. "Just filing a lawsuit and going through the initial stages of the discovery could cost a million dollars," he said.
