When I was in elective office, there were numerous ethics rules and laws. I couldn’t tell you what they all were, and I only followed one rule, which wasn’t formally written, anywhere — The rule of the Front Page — if you don’t want to see an article on the front page of a newspaper about you doing some specific thing or another, don’t do it. Makes life very simple. It also is a good reason for openness, transparency, and FOIA. If you know that people can find out what you did, easily, which means that it is easy to get onto the “Front Page”, you’re even less likely to do something stupid.
Ben Bernanke wants to keep all Federal Reserve actions related to bailouts and discount windows hidden because he doesn’t want to see it on the “Front Page”. Fortunately, we have some good government conservatives in Washington who, now that they have some power in the House of Representatives, are forcing the Fed into the light.
According to Bloomberg:
U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya…
The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record…
“Our job is to provide liquidity to keep the American economy going,” Richard W. Fisher, president of the Federal Reserve’s regional bank in Dallas, told reporters today. “The loans were all paid back and they were well-collateralized.”
Well, I’m glad to know that the Fed, who has repeatedly been late to respond to the serial crisis and then responded in an adhoc fashion, was confident that these foreign borrows were well-collateralized. A quick look at the European stress tests would belie this notion. Of course, bad European collateral seems to be no worse than bad American collateral. Or only the intellectuals at the Fed can tell the difference. Wachovia Corp., now part of Wells-Fargo, was the only U.S. bank among the top five discount-window borrowers as the crisis peaked. So, not only are American banks too big to fail, but Libyan banks are too.
Tell me again why these folks are given such power over the economy? Tell me why anyone thinks that they will be able to unwind QE I & II without significant inflation?