Bloomberg News Responds to Bernanke Criticism
Federal Reserve Chairman Ben S. Bernanke said in a letter to four senior lawmakers today that recent news articles about the central bank’s emergency lending programs contained “egregious errors.”
While Bernanke’s letter and an accompanying four-page staff memo posted on the Fed’s website didn’t mention any news organizations by name, Bloomberg News has published a series of articles this year examining the bailout. The latest, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” appeared Nov. 28.
“Bloomberg stands by its reporting,” said Matthew Winkler, editor-in-chief of Bloomberg News.
Here is a point-by-point response to the Fed staff memo.
From Fed memo: “These articles have made repeated claims that the Federal Reserve conducted ‘secret’ lending that was not disclosed either to the public or the Congress. No lending program was ever kept secret from the Congress or the public. All of the programs were publicly announced when they were initiated, and information about all lending under the programs was publicly released -- both on a weekly basis through the Federal Reserve’s public balance sheet release and through detailed monthly reports to Congress, both of which were also posted on the Federal Reserve’s website.”
Response: Bloomberg’s Nov. 28 story about Fed lending reported that the central bank published regular reports on the scope of borrowings from the discount window and other emergency or temporary programs. The loans were described as “secret” because the amounts, names of borrowers, dates and, often, interest rates weren’t disclosed. The stories reported that the Fed’s rationale for keeping the loans secret was to prevent bank runs.
From Fed memo: “The Federal Reserve took great care to ensure that Congress was well-informed of the magnitude and manner of its lending.”
Response: Bloomberg’s story said Congress wasn’t fully apprised of the details of the Fed’s efforts. “We were aware emergency efforts were going on,” U.S. Representative Barney Frank, who served as chairman of the House Financial Services Committee, said in the Nov. 28 story. “We didn’t know the specifics.” Other members of Congress on both sides of the aisle also said they weren’t aware of the details.
See the rest of the Bloomberg article here: Bloomberg News Responds to Bernanke Criticism - BloombergThe text of the Fed Note is below:
Why did the Federal Reserve lend to banks and other financial institutions during the financial crisis?
Intense strains in financial markets during the financial crisis severely disrupted the flow of credit to U.S. households and businesses and led to a deep downturn in economic activity and a sharp increase in unemployment. Consistent with its statutory mandate to foster maximum employment and stable prices, the Federal Reserve established lending programs during the crisis to address the strains in financial markets, support the flow of credit to American families and firms, and foster economic recovery.
All of the Federal Reserve's lending programs were announced prior to implementation and the amounts of support provided were easily tracked in weekly and monthly reports on the Federal Reserve Board's website.
The Federal Reserve followed sound risk-management practices under all of its liquidity and credit programs. Credit provided under these programs was fully collateralized to protect the Fed--and ultimately the taxpayer--from loss. As verified by our independent auditors, the Federal Reserve did not incur any losses in connection with its lending programs. In fact, the Federal Reserve has generated very substantial net income since 2007 that has been remitted to the U.S. Treasury.
Most of the Fed's lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentives to exit as market conditions normalized. Lending peaked at $1.5 trillion in December 2008.* All of the emergency support programs established during the crisis were closed to new lending in 2010. Detailed information on the support provided to individual firms under these programs is available on the Federal Reserve Board's website.
* Liquidity Facilities include: Term Auction credit; primary credit; secondary credit; seasonal credit; Primary Dealer Credit Facility; Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; Term Asset-Backed Securities Loan Facility; Commercial Paper Funding Facility; and central bank liquidity swaps.
See the Bloomberg article here:
Bloomberg News Responds to Bernanke Criticism - Bloomberg
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