The Fed Can’t Leave Well Enough Alone

Whistle Blower Report: The Federal Reserve Undermining Investor Disclosure

While the bloom is finally off the rose on the stock market and this bull rush that is finally subsiding and reality is setting in, the Federal Reserve meanwhile can’t leave well enough alone.

One of the senior staffers at the fed called for making some bank assistance programs permanent. Central banks should consider making some of their existing emergency liquidity programs permanent to minimize the stigma of accessing central bank credit, a top Federal Reserve board staffer said Friday.

“They should consider whether some now-existing arrangements such as the Term Auction Facility [TAF] and similar mechanisms, need to be adapted and made permanent, or new facilities established, so that the stigma of using central bank credit is minimized, especially in future crises,” Brian Madigan, director of the Fed’s Division of Monetary Affairs, said in remarks prepared for deliver to a conference.

It seems market forces are the pariah at the Federal Reserve as usual. The discount window is in place to lend to banks directly. However, firms that borrow from the discount window suffer from a real and palpable stigma of being seen as showing financial weakness if they indeed borrow from the discount window.

Ever the opponent of free market forces, the TAF program, which was started back in 2007, allows firm to borrow from the discount window anonymously.

“The problem of discount window stigma is real and serious,” Madigan said. “The intense caution that banks displayed in managing their liquidity beginning in early August 2007 was partly a result of their extreme reluctance to rely on standard discount mechanisms.”

Madigan also argued that central banks should have the ability to lend to important non-bank firms that are subject to bank-like runs.

This is the bailout all over again. This is the lack of transparency all over again. With Bank of America just now paying out $33 million in fines for refusing to reveal the truth behind the Merill Lynch acquisition, you’d think these big players would learn.

No, they want to have their cake and eat it too. This entire bailout and lack of transparency is ruining the market. Besides myself, I don’t know anyone even caring that they are making trades in a virtual corrupt system that is engineered to make them fail.

Complete sham outlets like MSNBC, with a complete lack of journalistic integrity make reports like

” Money funds, for example, experienced bank-like runs in October 2008 as investors rushed to redeem their holdings. A number of them facing redemptions at the same time can pose a risk to the system.”

I just got through reporting on Cerberus having all of its investors call for redemption from the hedge fund. Clearly, firms like Cerberus suffer from a lack of good management that have failed deal after failed deal. The consequence is investors calling for redemptions.

Are investors to have no recourse on failed management of hedge funds? Are investors to have no recourse on bank management that make such terrible decisions that leads to a necessity to borrow from the discount window of the Federal Reserve?

It is the market forces that makes upper management change hands and become more interested in making actual profits. Once these bailouts started to happen, the power of the investor was completely emasculated and no one learned from the experience, unlike what a good bankruptcy does.

For instance, the former CEO of Lehman Brothers is seeking a job. Rightly so, everyone blamed him personally for the firms detrimental downfall.

So if the Fed continued, permanently, to allow banks to borrow from the discount window anonymously, this undermines the investor. I dare say, it undermines the SEC’s entire policy of disclosure. The information is kept anonymous from the investors of the firm.

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Ex law school student. I was kicked out for revealing I had a heart actually beating inside. I used to be in a modern dance company. I'm working on my 7 miracles to be proclaimed a saint by the pope. #1 is really hard, but once i get over that hump the other 6 will be a cinch.

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