|Why Central Bank Secrecy is Detrimental to Free-Market Capitalism|
Reporting from Laguna Beach, California…
WikiLeaks is grabbing the headlines, but your California editor considers the “Icky-Leaks” issuing from the Federal Reserve to be much more intriguing – like the icky leak that the Fed doled out trillions of dollars in clandestine bailouts and guarantees during the crisis of 2008 and early 2009.
Thanks to a nifty little provision in the Dodd-Frank reform bill, the Fed was forced to come clean with these embarrassing details. On December 1, the Fed published an exhaustive and detailed list of bailout recipients, along with the sums each received.
“The document dump confirms,” The Nation reports, “that the $700 billion Treasury Department bank bailout…signed into law under President George W. Bush in 2008 was a small down payment on an secretive ‘backdoor bailout’ that saw the Fed provide roughly $3.3 trillion in liquidity and more than $9 trillion in short-term loans and other financial arrangements.”
Bernanke vehemently resisted making these disclosures…for obvious reasons. The disclosures reveal the Fed’s too-cozy relationship with Wall Street. They also reveal a kind of institutionalized arrogance: the Federal Reserve knows what’s best for us, even if we don’t know it ourselves…or believe it.
During the last several months, Chairman Bernanke frequently and persistently asserted the need for secrecy at the Federal Reserve. Transparency, he argued, would compromise the Fed’s independence. The argument is ridiculous. Secrecy facilitates corruption and abuse. Transparency prevents it. A couple of free-thinking politicians recognized this reality early in the credit crisis.
As early as February, 2009, Senator Bernard Sanders, the Vermont Independent, complained to Bernanke, “Given the size of the [Fed’s] commitments, it is incomprehensible that the American people have not received specific details about them.”
Bernanke tersely replied: “The Federal Reserve does not release specific information regarding the borrowings of individual institutions from our lending facilities. The approach is completely consistent with the long-standing practice of central banks.”
As it turns out, this approach is also completely consistent with promoting deceptions and conducting crony capitalism…like doling out enormous bailout checks to Wall Street banks without ever disclosing the timing or size of these bailouts to the general public.
This is not a healthy circumstance for an economy that purports to practice “free-market capitalism.”