Could Bloomberg Lawsuit Mean Death to Zombie Banks?

My recollection is a bit hazy. How does one kill a zombie
exactly? Do you stake it? Cut off its head? Nationalize it? Perhaps it's
time to ask the experts at Bloomberg News.

Lost in the haze of the hoopla surrounding the insurance reform bill
was some big news on the financial reform front. On March 19, Bloomberg
won its lawsuit against the Federal Reserve
for information that could expose which "too big to fail" banks in the
United States are walking zombies and which banks were merely rotting.

Bloomberg, which has done some of the best reporting on the financial
crisis, is also leading the charge on the fight for transparency at the
Federal Reserve and in the financial sector. While many policymakers
and reporters were focusing their attention on the $700 billion Troubled
Asset Relief Program
(TARP) bailout bill passed by Congress,
Bloomberg was one of the first to notice that the TARP program was small
change compared to the estimated $2-3 trillion flowing out the back
door of the Federal Reserve to prop up the financial system in the early
months of the crisis.

Way back in November 2008, Bloomberg filed a Freedom of Information
Act request asking the Fed what institutions were receiving the money,
how much, and what collateral was being posted for these loans. Their
basic argument: when trillions in taxpayer money is being loaned out to
shaky institutions, don't the taxpayers deserve to know their chances of
being paid back?

Not according to the Fed. The Fed declined to respond, forcing
Bloomberg to sue in Federal Court. In August of 2009, Bloomberg won the
suit. With the backing of the big banks, the Fed appealed, and this
month, Bloomberg won again. A three judge appellate panel dismissed the
Fed's arguments that the information was to protect "confidential
business information" and told the Fed that the public deserved answers.

The Fed is the only institution in the United States that can print
money. It can drag this case out as long as it wants, but isn't it a bid
odd that taxpayer dollars are being used to keep information from the

After an unexpectedly rocky confirmation battle, Ben Bernanke
kicked off his new term as Fed Chair in February with pledges of
openness and transparency. "It is essential that the public have the
information it needs to understand and be assured of the integrity of
all our operations, including all aspects of our balance sheet and our
financial controls," said Bernanke. President Obama
also pledged a new era of transparency when he entered office. What is
going on here?

One theory is that Fed is hiding the secret assistance it provided to
the financial sector, because it would expose how many Wall Street
institutions are truly walking zombies, kept alive by accounting tricks
like deferred-tax assets, "a fancy term for pent-up losses that the bank
hopes to use later to cut its tax bills," according to Bloomberg's Jonathan Wiel.
If this is the case, it raises doubts about the wisdom of Congress' only
plan to take care of the "too big to fail" problem by trusting
regulators to "resolve" failing banks. If there is no will to resolve
them now, why should we think regulators will resolve them in the

Another theory is that the Fed is hiding the fact that it broke the
law by accepting a boatload of toxic assets as collateral. The law says
the Fed is only supposed to take "investment grade" assets as

In either case, the public deserves answers. "This money does not
belong to the Federal Reserve," Senator Bernie Sanders.
"It belongs to the American people, and the American people have a right
to know where more than $2 trillion of their money has gone."

The President and the Fed Chairman must live up to their pledges of
transparency. They can start by abandoning this lawsuit and opening the
doors on the Secrets of
the Temple

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