FOIA and the Fed
THE FEDERAL Reserve Board has long been one of the rare institutions in our democracy -- like the Supreme Court -- whose internal processes are largely shielded from public view. Though not quite a fourth branch of government, the Fed's independence is no less vital, in its own way, than that of the justices. There wouldn't be much point in having a central bank if its every technical decision about the money supply were subject to short-term political debate.
But the Fed's unprecedented interventions in the economy during the current financial crisis have stirred challenges to this view. It's uncontroversial to keep Fed decisions about setting interest rates and other traditional functions confidential -- but details of the Fed's unprecedented lending to particular companies such as Bear Stearns or AIG -- or others yet unnamed -- is a different matter. After all, the citizenry will reap the results of these commitments, which the Fed has made under its seldom-used -- and very broad -- emergency authorities. Under Chairman Ben S. Bernanke, the Fed has moved toward greater openness. Still, two-thirds of the House supports a bill sponsored by the Fed's arch-nemesis, Ron Paul (R-Tex.), that would require annual audits of its monetary policymaking and short-term lending.
Meanwhile, the Fed is asking the federal appeals court in New York to overrule a district court judge's decision giving Bloomberg News immediate access, under the Freedom of Information Act (FOIA), to the Fed's data on crisis lending. This means not only the total amounts lent, or the categories of collateral accepted -- which the Fed already releases -- but also the names of borrowers and the precise securities they have posted. (The Washington Post Co. recently announced an alliance with Bloomberg's wire service, but The Post is not a party to this case.) The Fed argues that publication of firms' participation in the emergency programs could spook investors and depositors, with potentially spiraling repercussions for the whole economy. Bloomberg counters that this is like telling markets they can't handle the truth.
Mr. Paul's legislation strikes us as a bad idea, insofar as it would subject the Fed's core interest rate-setting function to political second-guessing. Bloomberg's FOIA claim, which involves mostly emergency lending programs, is a close call -- as evidenced by the fact that one federal district court ruled in Bloomberg's favor and another sided with the Fed in a nearly identical suit brought by Fox News. Legally, the issues are whether details of Fed lending qualify as sensitive business information, which is exempt from FOIA -- and whether the Fed's warnings of triggering panic are "conjecture," as one judge held, or "real," as another found. In policy terms, the question is whether it can ever be right to let a government agency finance private firms in secret indefinitely. The solution might be to have the Fed to reveal more -- but not right away.
The controversy provides yet another reason for the Fed to keep the promise it has repeatedly made: to return to its normal role in the U.S. economy just as soon as conditions permit.