Liberty Maven

Ron Paul has HR1207 and over 267 cosponsors. The Senate has S604 and 8 cosponsors. Demanding Federal Reserve transparency is coming from all sides. Vern McKinley, who ran unsuccessfully against Frank Wolf in the 2008 10th district of Virginia’s GOP primary, has been fighting for transparency over the last several months using the law.

He wrote an excellent policy analysis released by the CATO institute in April called “Bright Lines and Bailouts: To Bail or Not to Bail, That is the Question“. I requested he summarize his actions leading up to the lawsuit, included below.

McKinley writes:

As part of the analysis for Bright Lines and Bailouts, we tried to answer the obvious question, why were these institutions bailed out. So we looked at the public pronouncements of the agencies involved such as the Treasury, Fed and FDIC. Most of these statements focused on the negative consequences that were avoided by taking the bailout route. However, they used vague phrases to describe the likely consequences, such as instability, contagion, fragility, disorderly, adverse, chaotic, disruption and many of those same or similar terms were used over and over again.

So we thought the logical follow-up question was what specific consequences did the Fed and the FDIC foresee from letting them fail outright? We didn’t know whether that was a string of bank failures or investment bank failures or non-financial institution failures or other consequences. We submitted Freedom of Information Act (FOIA) requests in November and December 2008 to the Fed with regard to Bear Stearns and AIG and to the FDIC with regard to Wachovia and Citigroup. FOIA is intended to assure that government agencies provide access to documents prepared internally and there are select exemptions to the release of certain types of information.

The FDIC was relatively responsive in the sense of focusing in on the precise information we requested and they determined that the information we wanted was in the relevant FDIC board meetings on September 29 (for Wachovia) and November 23 (for Citigroup). However, the board minutes they gave us from these meetings were heavily redacted and in every case where they discussed the negative consequences from failure the information was completely redacted.

The Fed only responded to the extent that they would give dates they expected to get the requested information by, first February 2, 2009 then early June 2009, then June 30, 2009. This led us to conclude that the Fed was not going to provide the information we wanted.

So on July 8, I brought suit against the FDIC and Fed in order to compel them to provide the requested information on the negative consequences that they thought would flow from allowing these large institutions to fail. This seems to be an important question to answer before the Obama Administration makes any changes to the current system of powers and authorities, as they have proposed expansions for both the FDIC’s and the Fed’s authority.

McKinley, showing he truly does care about transparency, has posted many of the documents and correspondence regarding his effort, including the heavily redacted document he received from the FDIC. Read them all here.