Bloomberg columnist: "our collective blood should boil"

Even a Bloomberg columnist is outraged:

[W]hen unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.

The rest of David Reilly’s article focuses on the puny (relative to trillions of dollars the Fed has shoveled to banks) $30 billion the New York Fed spent to pay 100 cents on the dollar to AIG’s counterparties — even though those contracts would have been worth pennies on the dollar if public money hadn’t paid off bankrupt AIG’s gambling trading debts — and the muscle the New York Fed successfully applied to the SEC and even AIG itself to force them not to disclose the 100% payoffs and which banks (including Goldman Sachs) received them.

If it seems the Federal Reserve Bank of New York worked to help banks, rather than Americans, and to keep its actions totally secret, that’s because it’s true:

[T]he New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests…

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.” And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit…

New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals — too many counterparties, too many lawyers and advisors, too many people from AIG — to keep a determined Congress from the information.”

Posted by James on Saturday, January 30, 2010