Friday, August 28, 2009

*sniff sniff* Smells Like Bullshit Here

Apparently, about a year ago Bloomberg sued the Federal Reserve in order to make them release the names of the banks that are receiving emergency federal bailout loans. Since these loans are rumored to be in the trillions of dollars, this doesn't seem unreasonable. The Fed fought and lost, and now the banks are trying a last ditch effort to stop the reveal. They're saying that if the names of the banks are revealed it could OMFG DESTROY THE WHOLE BANKING SYSTEM NOOOOOO!!1!!11!one!uno!

Yeah, right. Who honestly believes that the entire banking system would collapse just because people knew who was taking emergency funding from the Fed? I think the reason is this - banks are so used to conducting most of their operations outside the public eye, so they're bound to react badly when people ask to find out what, actually, goes on in those big, tall buildings behind the curtain. So they're just knee-jerk opposed to any efforts at transparency. Too bad for them, then, that their attempt to get out of transparency requirements is just, well, lame.

They should ask Obama how it's done. Seems he and his predecessor were pretty good at that sort of thing.


Miguel said...

Oh come now, Woody. It's possible the Fed has no fucking clue who they loaned money out to.

-Dave said...

As I read through the actual content of the quoted material, the specific claim seemingly being argued is that revealing which banks have had to take on emergency loans would place those individual institutions at a competitive disadvantage, a prospect I don't find unreasonable at all. If you knew your bank had to take on emergency loans, but the one down the street didn't, what's your normal reaction? Don't you kind of want to put your money in the bank that didn't need the bailout?

That's a reasonable action, and that reasonable action is exactly what causes a run on the bank, and the failure of said bank.

Really, there are only two plausible scenarios in my mind which don't lead down this road.

1) Most depositors don't care, or don't care enough to take action. If nobody - or a small enough number of depositors - acts on the information, then there's no need to fear a run on the bank.

2) The problem is systemic enough that everybody's bank is in trouble, so nobody has a "good" bank to run to.

At the institutional level, there is a real risk here. And when there's enough individual institutions facing danger, then there is the danger of a systemic problem.