This month the General Accounting Office (GAO) released a report on the financial crisis and came to the same conclusion as Judicial Watch: The government has failed to provide a rationale for its unprecedented intrusion into the private sector through the massive bailout scheme initiated in 2008. And more transparency is needed to get to the truth.
When questioned about their rationale for the bailouts (by Judicial Watch, the GAO and others), government officials simply repeat their standard line: There were “unusual and exigent circumstances” that warranted extreme measures.
Those extreme measures included the Federal Reserve authorizing credit to “troubled” private financial institutions. (Not since the Great Depression had the Fed authorized a loan to a non-banking entity.) If such measures were not taken, we were told, the institutions would collapse, thereby spreading a “contagion” throughout the global financial system.
This thin explanation is simply not good enough said the GAO. You can read the full report here
. In my view, here are two key takeaways (as reported by CNBC
- In explaining the basis for these exceptional credit extensions, Federal Reserve Board officials cited the continuing strains in financial markets and concerns about the possible failures of these dealers at the time. However, the Federal Reserve Board could not provide documentation explaining why these extensions were provided specifically to affiliates of these four primary dealers.
- ...without more complete documentation, how assistance to these broker-dealer subsidiaries satisfied the statutory requirements for using this authority remains unclear. Moreover, without more complete public disclosure of the basis for these actions, these decisions may not be subject to an appropriate level of transparency and accountability.
On this subject of transparency, Judicial Watch has launched a comprehensive investigation
of the government’s rationale for the bailouts on behalf of our client and former Federal Reserve employee Vern McKinley. We have a number of lawsuits related to the bailouts of Bear Stearns, AIG, Lehman Brothers, and others working their way through the system. And, in fact, on July 18, we filed a “Petition for Rehearing En Banc
,” with the U.S. Court of Appeals for the District of Columbia Circuit in our lawsuit over the Bear Stearns bailout (McKinley v. Board of Governors of the Federal Reserve System
, Case No. 10-5353).
Like the GAO, with this FOIA lawsuit Judicial Watch simply wants to know the Board of Governors of the Federal Reserve System’s justification for authorizing the Federal Reserve Bank of New York to provide “temporary emergency financing” to Bear Stearns through JP Morgan. (JW did learn from Treasury documents we unearthed that Bear Stearns was considered “worthless
” at the time the Federal Reserve Bank of New York handed JP Morgan $30 billion to take over the company.)
The government is stonewalling our request, saying that information related to this question is protected under the “deliberative process privilege” of FOIA law (Exemption 5). As you might imagine, documents supposedly relating to the “deliberative process” can be most the most illuminating about government decision-making and whether it is on the up-and-up.
Unfortunately, an appellate court panel bought the government’s argument.
On June 3, 2011, the panel ruled that if a government agency simply makes the claim that information can be withheld under Exemption 5 the courts must assume that releasing the information will harm the agency’s decision making process – even if no proof of harm is put before the court
Judicial Watch is now requesting that the appellate court hear the matter en banc
(or in full, rather than merely a three-judge panel). Here’s a squib from our brief
By substantially lowering the government’s burden of demonstrating that material may be withheld under the deliberative process privilege, the panel created a sweeping exemption that is in direct conflict with decades of decisions holding that material may be withheld under the deliberative process privilege only if a government agency demonstrates that disclosure of the withheld material would harm the agency’s decision-making process. [Emphasis added.]
Really this boils down to a very simple issue. We believe the American taxpayers deserve to know how and why the government committed trillions of dollars of their money to prop up failing financial institutions. But the government says it’s none of our business. (Just like the Obama administration says their debt ceiling “crisis” plans
are none of our business either.) Unfortunately, if allowed to stand, the panel’s ruling could severely undermine FOIA law.
The government’s position on these bailout documents is offensive and corrupt. And we’re glad the GAO has called attention to that with its report.