Ron Paul Says: Fess Up, Fed
By Ron Paul
Before the U.S House of Representatives, Committee on Financial Services, Subcommittee on Domestic Monetary Policy & Technology Hearing on Federal Reserve Lending Disclosure: FOIA, Dodd-Frank, and the Data Dump, June 1, 2011
Today’s hearing deals with one of the most pressing issues this subcommittee will face during this Congress, the issue of Federal Reserve transparency. While the Federal Reserve is still far less transparent than it should be, recent disclosures of the Federal Reserve’s lending programs have greatly increased our knowledge of the Fed’s monetary policy during the height of the financial crisis.
In December 2010 and March 2011, a remarkable thing happened: the Fed disclosed information on its lending facilities and discount window operations, including who borrowed money, what amounts were loaned, maturity dates, interest rates, and collateral. It took an act of Congress, the Dodd-Frank Act, to bring about the December releases that discovered the details of the emergency lending facilities set up by the Fed during the crisis. The March 2011 disclosures covered discount window lending, the oldest Fed lending tool, whose operations had never before been disclosed. It took a three year legal battle regarding the Freedom of Information Act’s (FOIA) applicability to the Fed in order to gain access to this information. The suits brought by Bloomberg and Fox News resulted in 29,000 pages of unorganized, heavily redacted documents being provided. Combining these two data releases has given us a fuller, if still woefully incomplete, picture of the Fed’s operations during the financial crisis and the nearly $3 trillion balance sheet it has built up.
On November 25, 2008, the Fed created the Term Asset-Backed Securities Loan Facility (TALF) which was intended to “lend up to $200 billion… to holders of certain AAA-rated ABS [asset-backed securities].” When the Fed released TALF data in December of 2010, 18% of TALF loans were backed by subprime credit card and auto loan securities, 17% of TALF loans were backed by “legacy”, a.k.a. troubled, commercial real estate securities, and 13% of TALF loans were backed by student loan securities. On March 11, 2008, the Fed created the Term Securities Lending Facility (TSLF) to “lend up to $200 billion…to primary dealers… secured… by… securities, including federal agency debt, federal agency residential mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS.” When the Fed released TSLF data in December of 2010, 26% of loans were backed by AAA/Aaa-rated securities, 17% were backed by non-AAA-rated securities, and 57% of loans were backed by collateral whose rating was not published by the Fed.