This week, Bloomberg reporter William Cohen described his story of how long and difficult it can be to get information from the Securities Exchange Commission (SEC) and the Federal Reserve regarding Wall Street firms, specifically Goldman Sachs, Bear Stearns and Lazard Freres.
Cohen attempted to gather information from the two agencies using the Freedom of Information Act (FOIA). Initially enacted under President Lyndon B. Johnson’s administration in 1961, the Freedom of Information Act requires executive government agencies to comply with public solicitation of information. When Cohen petitioned these agencies, the response was less than forthcoming.
“Getting this information in anything like a timely basis … has been nearly impossible,” Cohen wrote in Bloomberg. “At first, when I asked the SEC about documents … the agency told me it could not release the information.”
“When I reminded the FOIA administrator that the SEC had already released the information, years before, to another journalist, the agency dug up the 40 boxes of unindexed, unorganized documents and invited me to a warehouse in Pennsylvania to take a look,” he continued.
The SEC has also yet to provide Cohen with information he has requested about both Goldman Sachs or Bear Stearns. In the meantime, he has published a book on both banks.
The agencies may be wary to comply with FOIA because they gave banks trillions of dollars in secret loans.
On U.S. banks’ neediest day, Dec. 5, 2008, the Fed propped them up with a combined loan of $1.2 trillion. All the while, banks were telling investors they were perfectly sound institutions to invest in.
In total, the Federal Reserve doled out a staggering $7.77 trillion in secret loans in an effort to stabilize banks during the financial crisis.
“No one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates,” Bloomberg reported last November.
Lending programs and liquidity infusions, such as the Troubled Asset Relief Program, have been met with mixed reviews. TARP gave $160 billion to the six largest U.S. banks. Those banks — JPMorgan, Bank of America, Citigroup, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley — also borrowed as much as $460 billion from the Fed, according to Bloomberg. At the time, the six banks held 63 percent of the average daily debt to the Fed of all publicly traded banks, money managers and investment firms.
While the Treasury and Fed stabilized large banks like Goldman and Morgan Stanley, smaller banks, who were still financially stable and sound, were forced to take the TARP loan. Judicial Watch reported that an Oct. 13, 2008, Treasury Department meeting “coerced major banks to allow the government to take $250 billion equity stakes.”
The Fed argues that stabilizing banks is a core responsibility of the central banks. “Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.”
Still, the Fed’s loans worked to the benefit of the largest banks, not all banks. And their secret liquidity injection don’t help their case.
“If our government agencies continue to do everything in their considerable power to keep hidden information that belongs in the public realm, all the regulatory reform in the world won’t end the rot on Wall Street,” Cohen concluded in his column.
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