Eagerly Anticipating a Ruling on the Bloomberg/Fed Dispute

After hearing arguments in January, court watchers are awaiting a decision from the federal appellate court in the dispute between Bloomberg LP and the Federal Reserve regarding the news organization's request for access to a loan-by-loan accounting of its emergency bailout to banks. Bloomberg seeks information on how much was borrowed, when, on what terms, and in exchange for what collateral.

Despite a win for Bloomberg in the lower courts, the Fed has still not provided the records. The Fed argues that if such records were public, it would cause greater harm to the banks, could lead to bank panic, and could weaken the banking system further by making banks hesitant to seek future aid from the lender of last resort.

For Bloomberg, the lawsuit represents a principled stand for transparency and a tribute to its late reporter, Mark Pittman, who spearheaded efforts to obtain the information under FOIA before his sudden death in November 2009.

For more information, click here.

Transparency or Financial Stability? The Arguments in Bloomberg v. Fed

The New York Times brings this fascinating account of the legal wranglings of Bloomberg News against the Fed for information pertaining to the Bailout. Described as a "principled grudge match," the feud over the financial news giant's FOIA requests has the Fed arguing that the information sought could cause stigmatization of certain banks, potentially bank runs, and could jeopardize the government's efforts to stabilize the economy, while Bloomberg argues it is seeking transparency in order to fulfill its watchdog role.

SEC Treated AIG Bailout Document Like a Matter of National Security

Emails turned over by the New York Federal Reserve to the House Committee on Oversight and Government Reform reveal that the U.S. Securities and Exchange Commission originally treated the New York Fed's request to keep secret details of the American International Group (AIG) bailout like a request to protect matters of national security.

Reuters reports that the New York Fed was only comfortable with AIG submitting a bailout-related document tot he SEC after it received assurances that "special security procedures" would be used to handle the document. The SEC also agreed that only two SEC employees would review the document and it would be kept in a locked safe.

For more on the protective measures of the AIG bailout details, click here.

So What Exactly is "Systemic Risk"?

A recently-filed lawsuit seeks to an answer to this question. Plaintiff Vern McKinley is suing the FDIC and the Federal Reserve to get answers to his FOIA requests on last year's bailouts. The Wall Street Journal reports on McKinley's efforts:

Last December, Mr. McKinley sent a FOIA request to the Fed to find out what Fed governors meant when they said a Bear Stearns failure would cause a "contagion." This term was used in the publicly-released minutes of the Fed meeting at which the central bank discussed plans by the Federal Reserve Bank of New York to finance Bear's sale to J.P. Morgan Chase. The minutes contained only the vague warning of doom, without any detail on how exactly the fall of Bear would destroy America. Mr. McKinley's request sought the supporting documents for this conclusion.

He also requested minutes of the autumn FDIC board meeting at which regulators approved financing for a Citigroup takeover of Wachovia. To provide this assistance, the board had to invoke the "systemic risk" exception in the Federal Deposit Insurance Act, and therefore had to assert that such assistance was necessary for the health of the financial system. Yet days later, Wachovia cut a better deal to sell itself to Wells Fargo, instead of Citi. So how necessary was the FDIC's offer of assistance?

After Mr. McKinley sued the agency this summer, the FDIC coughed up a previously undisclosed staff memo to the FDIC board. Again, the agency redacted the substance, providing roughly two pages of text from the nine-page original. The section of the memo titled "Systemic Risk" was entirely erased. As for the Fed, it blew off Mr. McKinely's initial request and has since responded mainly with some highly uninformative letters from the Fed staff to Congress.

More here.

Fox loses bailout-related Federal Reserve suit

A U.S. District Court judge ruled that the Federal Reserve Board had the right to withhold bailout-related documents from Fox News, the Reporters Committee for Freedom of the Press reported. Judge Alvin Hellerstein said the records fell under the exemption that protects trade secrets and confidential information and that the 12 regional Federal Reserve banks are not government agencies (therefore, the board doesn't have to search the banks' records in response to Fox's request). Fox is likely to appeal and has another pending FOIA suit against the Treasury Department for other bailout records. Bloomberg News and The New York Times have simliar pending requests.

A federal judge ruled against Fox News Thursday in a key Freedom of Information Act case involving bailout-related documents held by the Federal Reserve Board.

Judge Alvin K. Hellerstein in the U.S. District Court in Manhattan ruled that the Federal Reserve Board in Washington had properly withheld more than 6,000 pages of documents from Fox because the records fell under the FOIA exemption protecting trade secrets and confidential information.

Fox sought information about the Federal Reserve’s emergency lending program, known as the discount window.

More here.

NFOIC Summit: Fiscal transparency

Charles Glasser, global media counsel for Bloomberg News; James Nobles, legislative auditor for the State of Minnesota; and Rebecca Otto, auditor for the State of Minnesota spoke about the secrecy surrounding the bank bailout and other fiscal transparency issues. Jane Kirtley, Silha professor of media ethics and law at the University of Minnesota School of Journalism & Mass Communication moderated. Here are the notes from this NFOIC Summit session:

Charles Glasser on the Bloomberg lawsuit:

• Glasser explains the "great freak-out of 2008" as follows. A network of banks borrow money from the Federal Reserve each night. The money's distributed through a discount window. Bank X says we need $200,000 until tomorrow so our checks clear. That discount window number is public. It's released every morning by the Treasury. The number usually hovers between $1 and $4 million a night. For the federal government, that’s not big money.
• Mark Pittman saw this number climbing. He noticed that the overnight window ballooned to $400 million inside two weeks. He called the Federal Reserve, which said that information is proprietary and can't be released. The Federal Reserve is lending public money to private banks but saying it doesn't have to disclose the criteria for collateral. What did the federal government take in return as a promise for your money? And on what terms was your money given and to whom?
• Bloomberg filed the lawsuit in November, and it's still under advisement. The suit's been assigned to a friend-of-the-press judge in the southern district, so Bloomberg is hopeful.
• Glasser said the fact that Bloomberg had to file this suit is something in and of itself that should raise your ire.
• Great credit goes to Matt Winkler and Mike Bloomberg, who from day one told reporters and editors to do the right thing and they'd deal with the cost later. So far the cost is estimated at $125,000.
• Two weeks after Bloomberg filed the lawsuit, FOX News announced that it was suing the federal government without any mention of Bloomberg. "The boat is always big enough," Glasser said. The more people involved, the better.
• The best federal agency to comply with FOIA requests was the Department of Defense, and this was under the Bush administration. The Securities and Exchange Commission rated the worst. It's the one federal agency that was created to promote transparency and fairness in the market.
• Bloomberg filed a FOIA letter to the Board of Governors for records on how much money was lent in a certain time period and under what terms. It resulted in a de facto denial. The board didn't respond. Bloomberg kept at them and received a response 30 days late. It said the material is considered proprietary trade secret and would cause harm to the parties involved. The Fed was basically saying if the public knew which banks were in trouble, the banks would get in trouble because of a run. In the meantime, the Troubled Asset Relief Program was announced. Bloomberg noticed that when a company announced that it was applying for TARP, its stock would jump. Investors felt better with a company that had the backing of the federal government. Therefore, this argument that knowing what banks were bailed out would cause competitive harm makes no sense.
• Bloomberg is now hoping to at least prove that the Board of Governors is FOIA-able.
  
• Bloomberg has launched a new iniative that has tasked all investigative reporters to use FOIA aggressively. In the Bloomberg terminals are built-in internal functions called FOIA Go, which provides guidelines and templates for FOI requests in most states and some nations.

Minnesota auditing:

• Rebecca Otto oversees local government spending. She helped revamp reports by telling her staff that if no one understands them, we're not doing our job. She aimed to make them understandable and nonpartisan. Her office did that by creating easy-to-read executive summaries with the report's most important information and references to page numbers of the report.
• Her office as overhauled the Web site so that audits and special investigations were easy to find online. She asked the media to sign up the her office's weekly newsletter, and she works closely with reporters to help them ensure their stories are accurate.
• When her office audits local governments, the audits are public. It's not as transparent when private CPAs audit local government. Their papers are sometimes proprietary. The same thing with special investigations done by her office versus by private investigators.
• James Nobles audits state government and outline four things needed for good government.

1. Strong laws that require records to be open. Minnesota has a presumption that all government data is public unless specifically classified by law as otherwise. Nobles would like to get to the point where citizens would have access to raw data related to the state's accounting system. The problem is how to also protect for privacy.
   
2. Active, vigorous citizen participation in government.
3. A vigorous media. Nobles worries about the diminished resources of media and whether investigative work will continue.
4. Paid agents of accountability. It's important in every state that there are independent agents to dig out data about how the government is spending money.
   

Great resources:

• States for a Transparent and Accountable Recovery
• Bailout Watch