Who’s the boss? The Fed or the American people?

March 5th, 2009

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As we all know, the American tax-payers are on the hook to lend money, up to the amount of US$2.2 trillion, to ailing banks. So, isn’t it fair that the American people should at least know to whom these money are lent to?


In a Senate Budget Committee hearing (see UPDATE 1-U.S. senator wants Fed to name loan recipients), there was a heated exchange between Sen. Bernie Sanders and Ben Bernanke:

Sanders: My question to you is, will you tell the American people to whom you lent $2.2 trillion of their dollars?

Bernanke gave a generic answer by saying that the Fed explained the various lending programs on its website, and details the terms and collateral requirements. So, Sanders began to press Bernanke again for the specific names. That was Bernanke’s answer:

Bernanke: No.

What? Bernanke refused to answer this question?

Well, as he explained, doing so will stigmatise the banks and discourage them from borrowing from the Fed, which in turn is funded by the American tax-payers. Sanders cut Bernanke off,

 Sanders: Isn’t that too bad, they took the money but they don’t want to be public about the fact that they received it.

Later, as the senator said “businesses in his state were in trouble and needed loans, but were not permitted to borrow from the Fed.” So, he asked Bernanke,

Sanders: Do you have to be a large, greedy, reckless financial institution to apply for this money?

Bernanke replied that the Fed could not do that legally. The exchange continued,

Bernanke: We have never lost a penny doing it

Sander: Let me just say this, Mr. Chairman. I have a hard time understanding how you have put $2.2 trillion at risk without making those names available, those institutions public. It is unacceptable to me that that this goes on.

As this Bloomberg article says,

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.

So, who’s the boss?

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