Hey, No Peeking!

Today, Bloomberg reports:

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

"The collateral is not being adequately disclosed, and that's a big problem," said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. "In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin."

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

So they promised transparency, then said “Hey, juz kidding!”

Not that we need to see a list of the collateral that they’re accepting (chicken bones, paper bags filled with dog poo, lawn clippings, bad disco on 8-track cartridges, etc.) because everyone knows the collateral is worthless. The lack of transparency just confirms it.

In addition to reneging on transparency promises, the Fed/Treasury tag team has given itself the power to author tax law, in order to make handouts/bailouts/FAILouts less “difficult”. Say goodbye, section 382.

“Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”

So, they’re breaking the law. Will anyone do anything about it?

“It’s just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system,” said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. “We’re left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?”

Answer: No one.

At what point do we say enough is enough?

-----------------------------------------------------------------

Today, American Express announced that it received approval from the Federal Reserve in its application to become a bank holding company (Morgan Stanley and Goldman Sachs transformed themselves from investment banks into bank holding companies back in late September). Apparently people aren’t paying their credit card bills, which is shocking because I thought consumers were flush with cash.

Why does American Express want to change its stripes from industrial loan company to bank holding company? The TARP, of course! Bank holding companies have access to the unlimited supply of taxpayer monopoly money that Hamerin’ Hank Paulson and Helicopter Ben Bernanke are doling out. Duh!

Normally there’s a 30 day waiting period for this type of application but “in light of the unusual and exigent circumstances affecting the financial markets” the Fed sorta rushed this one through.

-----------------------------------------------------------------

Circuit City filed for bankruptcy. Mattel, maker of toy cars now has a larger market cap than General Motors, maker of real cars. Shares of GM were down 23% to $3.36, levels not seen since the 1940's.