Lack of Transparency in Fed Balance Sheet and Liquidity Programs

BY MIKE SHEDLOCK | june 11, 2009

Inquiring minds are investigating statements made by Ben Bernanke regarding Federal Reserve Credit and Liquidity Programs.

"The Federal Reserve strongly believes in transparency as a fundamental principle of central banking in a democracy. This new report, together with other steps taken as a result of a comprehensive review of our disclosure practices led by Vice Chairman Kohn, significantly enhances the information Federal Reserve is releasing and should help the public and the Congress better judge how we are carrying out our responsibilities for stabilizing the financial system and the economy," said Board Chairman Ben S. Bernanke. "We will continue to look for opportunities to broaden the scope of information and analysis we provide."

If the Federal Reserve believed in transparency, then why did Bloomberg have to file various freedom of information lawsuits against the Fed?

If the Federal Reserve believed in transparency, then why did Congress subpoena the Fed over BOA-Merrill Lynch.

House lawmakers on Tuesday said they have subpoenaed the Federal Reserve to hand over e-mails, notes and other documents related to its role in Bank of America Corp.'s acquisition of Merrill Lynch & Co.

The lawmakers' subpoena comes after claims that top government officials pressured Bank of America Corp. CEO Ken Lewis to complete the bank's purchase of Merrill Lynch, threatening his job security. Lewis has testified that he had been advised by the officials, former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, not to disclose details of Merrill Lynch's difficult financial position, according to New York State Attorney General Andrew Cuomo.

The evidence against Paulson and Lewis is massive. Please see Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis for details.

Fed Uneasy With Coming Balance Sheet Rules

If the Federal Reserve believed in transparency then why is the Fed uneasy with coming balance sheet rules?

The U.S. Federal Reserve has privately expressed concerns over new accounting rules that could force banks to move more assets onto their books, a person familiar with the Fed's thinking said on Friday.

Fed officials are concerned the changes could complicate emergency programs the central bank created over the last year-and-a-half to kick-start capital markets by ridding banks of toxic assets, said the person, who requested anonymity because of the sensitivity of the situation.

"They are concerned about their ability to deal with the toxic asset issue," this person said. "The Fed is trying to take these assets off the financial institutions, but some will come onto the balance sheet. They are afraid it will exacerbate an already complicated situation."

Translation: The last thing the Fed wants is transparency on its balance sheets or the balance sheets of banks in general. Note that the Fed has posponed balance sheet rules once already, last November.

Don't Ask - Don't Sell

The plan boils down to this: Don't Ask - Don't Sell.
Don't Ask what the asset is worth.
Don't Sell or you will find out and not like the result.

Is Anyone Minding the Store at the Federal Reserve?

If the Federal Reserve believed in transparency, then why are we seeing videos like these?

Ron Paul: Audit the Fed, Then End It!

For more information about HR1207, click here.

The Fed's Balance Sheet

Inquiring minds are now actually digging deeper into the Fed's Balance Sheet. Please consider the Federal Reserve Monthly Report on Credit and Liquidity Programs and the Balance Sheet.

Total Assets, Liquidity Facilities, Securities Held Outright

The Fed is clearly ramping down liquidity facilities. However, equally as fast the Fed is ramping up securities held outright.

Securities Held Outright

Fed's Purchases of Mortgage Backed Securities Soar

What are we getting for these purchases? This is what: Mortgage Market Remains Solidly Frozen.

"Mortgage rates jumped again to 5.75% and refis are frozen solid. The trade-up market is dead but some new houses are still moving .... for now. "

Two weeks ago when rates were hovering around 5.5% Mark Hanson commented "Mortgage banks that made unhedged commitments at 4.25-4.75% are now in a position to lose substantial sums of money." Today it's an even bigger loss.

Questions, Questions, Questions

What is the current market value of the Fed's holdings?
Who did the Fed swap with?
In what amounts?
Don't taxpayers have a right to know?
When is the Fed going to be audited?
Since the parameters of the Stress Test were horribly wrong, are we going to see another stress test? With better disclosure this time?
What is the exit strategy?

Questions are many, answers are few. There is no real transparency at the Fed, no matter how much Bernanke tries to fake it.

contact information

Michael Shedlock
Observation Archive

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