The Feds "secret" loans

This story is a few days old but it warrants notice. While most of our attention was focused on TARP back in the critical days of fourth quarter 2008, that wasn't where the really big money was transacted. While TARP was the controversial $700 billion rescue package put forward by the U.S. Treasury Dept. the Federal Reserve was providing copious amounts of liquidity into the market.


Thanks to a hard fought Freedom of Information Act victory Bloomberg reported this past week that the Fed provided as much as $1.2 trillion of loans to financial institutions. Secret Fed Loans The rate on these loans was effectively zero allowing the banks to generate income of approximately $13 billion according to Bloomberg.

There is a higher order question though. The market knew that the Fed was providing significant funding to the market during the crisis but it was only through a FIA lawsuit that the info was made available. Hence a dilemma: was the Fed appropriate to keep its efforts secrets? By going public with its aggressive funding the Fed may have undermined confidence in the nations biggest financial institutions.  Is withholding the truth ever justified? Were the big banks anything more than  obfuscating when they reported Q4 2008 and Q1 2009 results?

I see a future Senior Seminar "Taking Sides" debate here!