Bloomberg News has filed a suit in a New York court under the 'US Freedom of Information Act' against the US Federal Reserve after it refused to disclose the names of those it has loaned money from the over $2 trillion emergency bailout funds set up from US taxpayer's money.
Bloomberg has also filed to force the Fed to disclose the nature of assets it has accepted from these borrowers as collateral.
The wire agency sought the help of the court to force the Federal Reserve to disclose what collateral the central bank is accepting on the $2 trillion of loans it has made to various financial institutions as well as the terms of 11 Federal lending programmes was created to help businesses tide over the current financial crisis.
Bloomberg reported that when it first approached the Fed for the information, the Fed responded by saying that it is "allowed to withhold internal memos as well as information about trade secrets and commercial information".
Bloomberg News reported that it had first asked the Fed to provide data on collateral posted from 4 April to 20 May and waqs informed by it on 19 June that it needed time until 3 July to search documents and decide whether it would make them public.
The nws agency said it did not receive a formal response that would let it file an appeal within the legal time limit.
Therefore on 25 October it once filed its second erequest enlarging the range of when the collateral was posted.
In response to Bloomberg's request, the Fed said the U.S. is facing ''an unprecedented crisis'' in which ''loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.''
Fed chairman, Ben Bernanke and treasury secretary, Henry Paulson, had told the US Congress in September that the $700-billion bailout fund to the banks would be made in a transparent manner and it has already doled out $330 billion of the first tranche of $350 billion approved by the Congress after hopping from one plan to another.
The US Congress has to approve the second tranche of $350 billion of the remaining $700 billion. Citing the need for transparency, the Congress has already told former Goldman Sach CEO and now treasury secretary Henry Paulson not to bother to come for further approvals as many lawmakers are miffed at the way aid was doled out as well favoritism in giving out money to Wall Street firms.
Apart from this, the Fed has pumped $1.5 trillion in various other lending programmes that do not require the approval of the Congress.
Although having pledged to comply with the US Congress' demands for transparency, Fed chairman Ben S Bernanke and treasury secretary Henry Paulson have lent far more than that the $700 billion approved by the US Congress in separate rescue programmes that did not require Congressional approval, with ordinary Americans clueless as to where their money has gone or what securities the institutions are pledging in return.
The Treasury has already pumped in huge amounts of money bailing out AIG, Citigroup and JPMorgan Chase, and invested billions in Freddie Mac, and purchased billions in mortgage-backed securities in Freddie, Fannie Mae and the bankrupt Lehman Brothers.
Commentators believe that the Fed's refusal to disclose may be due to sensitivities on the confidentiality of the financial information about banks or internal communications. They say the Fed's fear could be that disclosure could lead to panic with depositors withdrawing their money from these banks.
But some experts feel that the real reason for not disclosing is that it had favoured certain institutions and the possibility of the Fed having given money and government bonds to banks whose assets accepted as collateral - stocks, subprime and structured instruments like CDOs - may now have become worth far less, if not altogether worthless, and is now trying to hide these losses.
Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets.
Banks would not like their names to be revealed as it would indicate their vulnerability that could compound an already precarious situation for them, causing a run on the banks.
Financial software services, news and data company Bloomberg LP, the parent of Bloomberg News, founded in 1981 by Michael Bloomberg (current Mayor of New York City), has one-third of the market share and is approximately the same size as Thomson Reuters.
Failed investment banker Merrill Lynch, which took a 20-per cent stake in Bloomberg LP sold its sake in July 2008 for around $4.5 billion to Michael Bloomberg who owns close to 68-per cent of the firm.