Banks Have Recognized 60% of Expected Loan Charge-Offs: Moody’s

Gee, and here I thought that the Federal Reserve bought $1.4-$2 *trillion* of them! Let alone Lehman and its 50 billion in subprime mortgages that it “hid” (and what about all the other TARP/Federal Reserve member banks??)

BY: CARRIE BAY 6/3/2010 DSNEWS

n its latest quarterly report on credit conditions of the U.S. banking system, Moody’s Investors Service says banks’ asset quality issues are “past the peak” butcharge-offs and non-performers continue to eat away at profitability and sheer fundamentals.

Based on Moody’s market data, banks’ non-performing loans stood at 5.0 percent of total loan assets at March 31, 2010.

Moody’s says U.S. rated banks have already charged off or written-down $436 billion of loans in 2008, 2009, and the first quarter of 2010. That leaves another $307 billion to reach the rating agency’s full estimate of $744 billion of loan charge-offs from 2008 through 2011.

In aggregate, the banks have recognized 60 percent of Moody’s estimated total charge-offs and 65 percent of estimated residential mortgage losses, but only 45 percent of projected commercial real estate losses.

In the first quarter of this year, the banking industry’s collective annualized net charge-offs came to 3.3 percent of loans, versus 3.6 percent of loans in the fourth quarter

of 2009, Moody’s said. Despite two consecutive quarters of improvement in charge-offs, the ratings agency notes that the figures still remain near historic highs, dating back to the Great Depression.

According to Moody’s analysts, the decline in aggregate charge-offs was driven by commercial real estate improvement, which “we believe is likely to reverse in coming quarters,” they said in the report. A similar commercial real estate decline was experienced in the first quarter of 2009 before charge-offs accelerated through the rest of the year.

“The return to ‘normal’ levels of asset quality will be slow and uneven over the next 12 to 18 months,” said Moody’sSVP Craig Emrick.

But Emrick added that “Although remaining losses are sizable, they are beginning to look manageable in relation to bank’s loan loss allowances and tangible common equity.”

U.S. banks’ allowances for loan losses stood at $221 billion as of March 31, 2010, which is equal to 4.1 percent of loans, Moody’s reported. Although this can be used to offset a sizable portion of remaining charge-offs, banks will still require substantial provisions in 2010, the agency said.

Moody’s says its negative outlook for the U.S. banking system is driven by asset quality concerns and effects on profitability and capital. The agency’s ratings outlook is also influenced by the potential for a worse-than-expected macroeconomic environment, Moody’s said.

“More severe macroeconomic developments, the probability of which we place at 10 percent to 20 percent, would significantly strain U.S. bank fundamental credit quality,” Moody’s analysts wrote in their report.

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Lehman sues JPMorgan for billions in damages: REUTERS

Jonathan Stempel

NEW YORK
Wed May 26, 2010 7:56pm EDT

The JP Morgan and Chase headquarters is seen in New York in this January 30, 2008 file photo. REUTERS/Shannon Stapleton

NEW YORK (Reuters) – Lehman Brothers Holdings Inc (LEHMQ.PK) on Wednesday sued JPMorgan Chase & Co (JPM.N), accusing the second-largest U.S. bank of illegally siphoning billions of dollars of desperately-needed assets in the days leading up to its record bankruptcy.

Hot Stocks

The lawsuit filed in Manhattan bankruptcy court accused JPMorgan of using its “unparalleled access” to inside details of Lehman’s distress to extract $8.6 billion of collateral in the four business days ahead of Lehman’s September 15, 2008, bankruptcy, including $5 billion on the final business day.

JPMorgan was Lehman’s main “clearing” bank, in which it acts as a go-between in Lehman’s dealings with other parties.

According to the complaint, JPMorgan knew from this relationship that Lehman’s viability was fast weakening, and threatened to deprive Lehman of critical clearing services unless it posted an excessive amount of collateral.

“With this financial gun to Lehman’s head, JPMorgan was able to extract extraordinarily one-sided agreements from Lehman literally overnight,” the complaint said. “Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors.”

Lehman also said JPMorgan officials including Chief Executive Jamie Dimon decided to extract the collateral after learning from meetings with Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson that the government would not rescue Lehman from bankruptcy.

In the widely expected lawsuit, Lehman and its official committee of unsecured creditors are seeking $5 billion of damages, a return of the collateral and other remedies.

JPMorgan spokesman Joe Evangelisti called the lawsuit “meritless,” and said the bank will defend against it.

Any money recovered could increase the payout to creditors. Lehman has also sued Barclays Plc (BARC.L) to recover an $11.2 billion “windfall” from the takeover of U.S. assets.

In March, a bankruptcy judge approved an accord providing for JPMorgan to return several billion dollars of assets to Lehman’s estate, but giving Lehman a right to sue further.

Lehman collapsed after letting its balance sheet swell through exposure to commercial real estate, subprime mortgages and other risky sectors. With $639 billion of assets, Lehman was by far the largest U.S. company to go bankrupt.

EXAMINER REPORT

In his March report on Lehman’s bankruptcy, court-appointed examiner Anton Valukas said Lehman could raise a “colorable claim” against JPMorgan over the collateral demands.

He nevertheless said JPMorgan could raise “substantial defenses” under U.S. bankruptcy law.

Evangelisti contended that “as the examiner’s report makes clear, it was the ill-advised decisions of Lehman and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate — and not conduct by our firm — that led to Lehman’s demise.”

Lehman, though, maintained that JPMorgan extracted the collateral to “catapult” itself ahead of other creditors.

“A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse,” the complaint said, referring to the Panic of 1907.

“A century later, when the nation faced another epic financial crisis, Morgan’s namesake firm stripped a faltering Lehman Brothers of desperately needed cash,” it added.

The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Jonathan Stempel; Additional reporting by Matthew Goldstein; Editing by Phil Berlowitz, Bernard Orr,Gary Hill)

ONE TO WATCH! Civil Lawsuit, Allran vs. New York Fed, alleges cartel & Ponzi: ZeroHedge

Via Zerohedge

 All we can hope for is for this to get to trial. And any case which in its brief says: “As American citizens, the Plaintiffs allege the financial and banking system imposed on them by the Federal Reserve Banking sytem is a violation of their Constitutional and Human Rights. That the banking system practiced by the New York Federal Reserve Bank, owned and controlled by the Defendant Wall Street Banks, is the most sinful and evil PONZI scheme man is capable of devising” deserves a hearing.The ratings for C-Span will blow the Superbowl away. A 30 second ad slot will cost exponentially more as the case progresses adversely for the Federal Reserve, and the dollar gets increasingly devalued. Allran v NY Fed Reserve

Could Bloomberg Lawsuit Mean Death to Zombie Banks?

Center for Media and Democracy and http://www.BanksterUSA.org

Posted: March 28, 2010 09:43 AM
My recollection is a bit hazy. How does one kill a zombie exactly? Do you stake it? Cut off its head? Nationalize it? Perhaps it’s time to ask the experts at Bloomberg News.

Lost in the haze of the hoopla surrounding the insurance reform bill was some big news on the financial reform front. On March 19, Bloomberg won its lawsuit against the Federal Reserve for information that could expose which “too big to fail” banks in the United States are walking zombies and which banks were merely rotting.

Bloomberg, which has done some of the best reporting on the financial crisis, is also leading the charge on the fight for transparency at the Federal Reserve and in the financial sector. While many policymakers and reporters were focusing their attention on the $700 billion Troubled Asset Relief Program (TARP) bailout bill passed by Congress, Bloomberg was one of the first to notice that the TARP program was small change compared to the estimated $2-3 trillion flowing out the back door of the Federal Reserve to prop up the financial system in the early months of the crisis.

Way back in November 2008, Bloomberg filed a Freedom of Information Act request asking the Fed what institutions were receiving the money, how much, and what collateral was being posted for these loans. Their basic argument: when trillions in taxpayer money is being loaned out to shaky institutions, don’t the taxpayers deserve to know their chances of being paid back?

Not according to the Fed. The Fed declined to respond, forcing Bloomberg to sue in Federal Court. In August of 2009, Bloomberg won the suit. With the backing of the big banks, the Fed appealed , and this month, Bloomberg won again. A three judge appellate panel dismissed the Fed’s arguments that the information was protect “confidential business information” and told the Fed that the public deserved answers.

The Fed is the only institution in the United States that can print money. It can drag this case out as long as it wants, but isn’t it a bid odd that taxpayer dollars are being used to keep information from the taxpayers?

After an unexpectedly rocky confirmation battle, Ben Bernanke kicked off his new term as Fed Chair in February with pledges of openness and transparency. “It is essential that the public have the information it needs to understand and be assured of the integrity of all our operations, including all aspects of our balance sheet and our financial controls,” said Bernanke. President Obama also pledged a new era of transparency when he entered office. What is going on here?

One theory is that Fed is hiding the secret assistance it provided to the financial sector, because it would expose how many Wall Street institutions are truly walking zombies, kept alive by accounting tricks like deferred-tax assets, “a fancy term for pent-up losses that the bank hopes to use later to cut its tax bills,” according to Bloomberg’s Jonathan Wiel. If this is the case, it raises doubts about the wisdom of Congress’ only plan to take care of the “too big to fail” problem by trusting regulators to “resolve” failing banks. If there is no will to resolve them now, why should we think regulators will resolve them in the future?

Another theory is that the Fed is hiding the fact that it broke the law by accepting a boatload of toxic assets as collateral. The law says the Fed is only supposed to take “investment grade” assets as collateral.

In either case, the public deserves answers. “This money does not belong to the Federal Reserve,” Senator Bernie Sanders. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”

The President and the Fed Chairman must live up to their pledges of transparency. They can start by abandoning this lawsuit and opening the doors on the Secrets of the Temple.

New York Fed Warehousing Junk Loans On Its Books: Examiner’s Report

Ryan Grim 
ryan@huffingtonpost.com
| HuffPost Reporting                                                                                                                 First Posted: 03-22-10 01:12 PM   |   Updated: 03-22-10 04:34 PM

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, For once, Grayson and Fed Chairman Ben Bernanke are in agreement, to a point. A New York Fed spokesman directed HuffPost to congressional testimony Bernanke delivered last month. “While the emergency credit and liquidity facilities were important tools for implementing monetary policy during the crisis, we understand that the unusual nature of those facilities creates a special obligation to assure the Congress and the public of the integrity of their operation,” Bernanke said. “Accordingly, we would welcome a review by the GAO of the Federal Reserve’s management of all facilities created under emergency authorities.”

Just how far that review would go is the subject of debate in the Senate.

The Valukas report found clear evidence that the New York Fed knew that Lehman was sending it garbage that it had no intention to market. In other words, the baskets of assets were created for the specific purpose of selling to the Fed for far more than they were worth.

Lehman knew it too: “No intention to market” was scrawled on one of the internal presentations about the assets. A separate bank, Citigroup, later characterized the assets as “bottom of the barrel” and “junk” when Lehman tried to push them their way, according to the report.

If Lehman hadn’t gone bankrupt anyway, the public would have no knowledge of this backdoor bailout. “It’s just fortuitous that we found out about this through a bankruptcy proceeding and a trustee that was willing to allow and pay for some digging,” said Grayson. “Do we really just have to hope for the best, that whenever the Fed does something wrong, we might someday find out about it?”

Geithner himself was aware that there was a gap between what Lehman claimed the assets were worth and what they were really worth. “The challenge for the Government, and for troubled firms like Lehman, was to reduce risk exposure, and the act of reducing risk by selling assets could result in ‘collateral damage’ by demonstrating weakness and exposing air’ in the marks,” Geithner said, according to the report.

The assets, called “Freedom CLOs”, were sold to the Fed’s “Primary Dealer Credit Facility,” according to the report.

Lehman immediately recognized the value of what the Fed had set up. A day after the PDCF was announced, an internal Lehman analysis suggested that “the new ‘Primary Dealer Credit Facility’ is a LOT bigger deal than it is being played to be.” The facility could be a used as “as a warehouse for all types of collateral, we should have plenty of flexibility to structure and rethink CLO/CDO structures.”

It was a get-out-of-debt scheme and could “serve as a ‘warehouse’ for short term securities [b]acked by corporate loans [and] “MAY BE THE ‘EXIT STRATEGY’ FUNDING SOURCE WE NEED TO GET NEW COMPETITION IN THE CORPORATE LOAN MARKET,” according to the Lehman analysis.

But not one that Lehman felt like discussing with the public. “Given that the press has not focused (yet) on the Fed window in relation to the [Freedom] CLO, I’d suggest deleting the reference in the summary below,” CEO Dick Fuld wrote in an April 4, 2008 email uncovered by the report. “Press will be in attendance at the shareholder meeting and my concern is that volunteering this information would result in a story.”

Fuld has declared himself vindicated by the report.

The Fed won’t say how much more toxic “garbage” is in the Fed’s “warehouse” and that also concerns Grayson.

“The Fed’s balance sheet is a cartoon version of what’s actually inside,” said Grayson.
“We only get to basically do autopsies on the carcasses of the Fed’s failures, but what we don’t find out is when they show favoritism to companies that do not end up in bankruptcy.”

The Treasury didn’t immediately respond to a request for comment. Below is the relevant section of the report:

(c) In Addition to a Liquidity Backstop, Lehman Viewed the PDCF as an Outlet for Its Illiquid Positions
The PDCF not only provided Lehman with a ready response to those who speculated it would go the way of Bear Stearns, but also a potential vehicle to finance its illiquid corporate and real estate loans. A day after the PDCF became operational, Lehman personnel commented: “I think the new ‘Primary Dealer Credit Facility’ is a LOT bigger deal than it is being played to be . . . .” They mused that if Lehman could use the PDCF “as a warehouse for all types of collateral, we should have plenty of flexibility to structure and rethink CLO/CDO structures . . . .” Additionally, by viewing the PDCF as “available to serve as a ‘warehouse’ for short term securities [b]acked by corporate loans,” the facility “MAY BE THE ‘EXIT STRATEGY’ FUNDING SOURCE WE NEED TO GET NEW COMPETITION IN THE CORPORATE LOAN MARKET.”

Lehman did indeed create securitizations for the PDCF with a view toward treating the new facility as a “warehouse” for its illiquid leveraged loans. In March 2008, Lehman packaged 66 corporate loans to create the “Freedom CLO.” The transaction consisted of two tranches: a $2.26 billion senior note, priced at par, rated single A, and designed to be PDCF eligible, and an unrated $570 million equity tranche. The loans that Freedom “repackaged” included high‐yield leveraged loans, which Lehman had difficulty moving off its books, and included unsecured loans to Countrywide Financial Corp.

Lehman did not intend to market its Freedom CLO, or other similar securitizations, to investors. Rather, Lehman created the CLOs exclusively to pledge to the PDCF. An internal presentation documenting the securitization process for Freedom and similar CLOs named “Spruce” and “Thalia,” noted that the “[r]epackage[d] portfolio of HY [high yield leveraged loans]” constituting the securitizations, “are not meant to be marketed.”

Handwriting from an unknown source underlines this sentence and notes at the margin: “No intention to market.”

Lehman may have also managed its disclosures to ensure that the public did not become aware that the CLOs were not created to be sold on the open market, but rather were intended solely to be pledged to the PDCF. An April 4, 2008 email containing edits to talking points concerning the Freedom CLO to be delivered by Fuld stated:

“Given that the press has not focused (yet) on the Fed window in relation to the [Freedom] CLO, I’d suggest deleting the reference in the summary below. Press will be in attendance at the shareholder meeting and my concern is that volunteering this information would result in a story.”

It is unclear, based solely on the e‐mail, why a reference linking the FRBNY’s liquidity facility to the Freedom CLO was deleted. One explanation could be that Lehman did not want the public to learn that it had securitized illiquid loans exclusively to be pledged to the PDCF. Another reason may have been to hide the fact that Lehman needed to access the PDCF in the first place, given that accessing the securities dealers’ lender of last resort could have negative signaling implications.

The FRBNY was aware that Lehman viewed the PDCF not only as a liquidity backstop for financing quality assets, but also as a means to finance its illiquid assets. Describing a March 20, 2008 meeting between the FRBNY and Lehman’s senior management, FRBNY examiner Jan Voigts wrote that Lehman “intended to use the PDCF as both a backstop, and business opportunity.” With respect to the Freedom securitization in particular, Voigts wrote that Lehman saw the PDCF

as an opportunity to move illiquid assets into a securitization that would be PDCF eligible. They [Lehman] also noted they intended to create 2 or 3 additional PDCF eligible securitizations. We avoided comment on the securitization but noted the firm’s intention to use the PDCF as an opportunity to finance assets they could not finance elsewhere.

Thus, the FRBNY was aware that Lehman viewed the PDCF as an opportunity to finance its repackaged illiquid corporate loans. The Examiner’s investigation has not determined whether the FRBNY also understood that these Freedom-style securitizations were never intended for sale on the broader market.

In response to a question from FRBNY analyst Patricia Mosser on whether Voigts knew “if they [Lehman] intend to pledge to triparty or PDCF,”5359 Voigts replied that the Freedom CLO was “created with the PDCF in mind.”

According to internal Lehman documents, Lehman did in fact pledge the Freedom CLO to the PDCF. On three dates, March 24, 25 and 26, 2008, Lehman pledged the Freedom CLO to the FRBNY on an overnight basis, and received $2.13 billion for each transfer.5361 FRBNY discussions concerning the CLO’s underlying assets, however, took place on or around April 9, 20085362 — more than a week after the FRBNY began accepting the CLO.

 

UPDATE: Tyler Durden at Zero Hedge has been all over this scandal.

Get HuffPost Business On Twitter, Facebook, and Google Buzz! Know something we don’t? E-mail us at huffpostbiz@gmail.comsopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.

13 BANKERS: MIT’s Johnson Says Too-Big-to-Fail Banks Will Spark New Crisis

Review by James Pressley :BLOOMBERG REVIEWS

March 22 (Bloomberg) — Alan Greenspan, the master of monetary mumbo jumbo, leaned back in his chair and grew uncharacteristically forthright.

“If they’re too big to fail, they’re too big,” the former Federal Reserve chairman said when asked about the dangers of outsized financial institutions.

It was October 2009, and the man who helped make megabanks possible was sounding more like Teddy Roosevelt than the Maestro as he entertained what he called a radical solution.

“You know, break them up,” he told an audience at the Council on Foreign Relations in New York. “In 1911, we broke up Standard Oil. So what happened? The individual parts became more valuable than the whole.”

Greenspan the bank buster crops up near the end of “13 Bankers,” Simon Johnson and James Kwak’s reasoned look at how Wall Street became what they call “the American oligarchy,” a group of megabanks whose economic power has given them political power. Unless these too-big-to-fail banks are broken up, they will trigger a second meltdown, the authors write.

“And when that crisis comes,” they say, “the government will face the same choice it faced in 2008: to bail out a banking system that has grown even larger and more concentrated, or to let it collapse and risk an economic disaster.”

The banks in their sights include Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. Though Wall Street may not like “13 Bankers,” the authors can’t be dismissed as populist rabble-rousers.

Cash for Favors

Johnson is an ex-chief economist for the International Monetary Fund who teaches at the Massachusetts Institute of Technology. Kwak is a former McKinsey & Co. consultant. In September 2008, they started the Baseline Scenario, a blog that became essential reading on the crisis. When they call Wall Street an oligarchy, they’re not speaking lightly.

Drawing parallels to the U.S. industrial trusts of the late 19th century and Russian businessmen who rose to economic dominance in the 1990s, the authors apply the term to any country where “well-connected business leaders trade cash and political support for favors from the government.”

Oligarchies weaken democracy and distort competition. The Wall Street bailouts boosted the clout of the survivors, making them bigger and enlarging their market shares in derivatives, new mortgages and new credit cards, the authors say.

Suicidal Risk-Taking

These megabanks emerged from the meltdown more opposed to regulation than ever, the authors say. If they get their way — and they will, judging from current congressional maneuvering over President Barack Obama’s proposed regulatory overhaul — Wall Street will retain its license to gamble with the taxpayer’s money. This isn’t good for anyone, including the banks themselves, which often feel compelled by competitive pressure to take suicidal risks.

“There is another choice,” they write: “the choice to finish the job that Roosevelt began a century ago, and to take a stand against concentrated financial power just as he took a stand against concentrated industrial power.”

Obama finds himself in the middle of a struggle that has coursed throughout U.S. history — the struggle between democracy and powerful banking interests. The book’s title alludes to one Friday last March when 13 of the nation’s most powerful bankers met with Obama at the White House amid a public furor over bailouts and bonuses.

The material that sets this book apart can be found at the beginning and end. Chapters three through six present an all- too-familiar, though meticulously researched, primer on how the economy became “financialized” over the past 30 years.

Regulatory Arbitrage

Crisis buffs won’t miss much if they skip ahead to the last chapter, where the authors debunk arguments that curbing the size of banks is too simplistic. A more complex approach, they say, would invite “regulatory arbitrage, such as reshuffling where assets are parked.”

They propose that no financial institution should be allowed to control or have an ownership interest in assets worth more than 4 percent of U.S. gross domestic product, or roughly $570 billion in assets today. A lower limit should be imposed on investment banks — effectively 2 percent of GDP, or roughly $285 billion, they say.

If hard caps sound unreasonable, consider this: These ceilings would affect only six banks, the authors say: Bank of America, JPMorgan Chase, Citigroup Inc., Wells Fargo & Co., Goldman Sachs and Morgan Stanley.

“Saying that we cannot break up our largest banks is saying that our economic futures depend on these six companies,” they say. “That thought should frighten us into action.”

Though Jamie Dimon won’t like this (any more than John D. Rockefeller did), incremental regulatory changes and populist rhetoric about “banksters” are getting us nowhere. It’s time for practical solutions. This might be a place to start.

“13 Bankers: The Wall Street Takeover and the Next Financial Meltdown” is from Pantheon (304 pages, $26.95). To buy this book in North America, click here.

(James Pressley writes for Bloomberg News. The opinions expressed are his own.)

To contact the writer on the story: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: March 21, 2010 20:00 EDT

By: Simon Johnson
The Baseline Scenario

Fed Audit Bitterly Opposed By Treasury

Huffingtonpost.com 3/9/2010

The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday. Instead, the official said, the Treasury prefers a substitute offered by Rep. Mel Watt (D-N.C.), and would like to see it enacted as part of the Senate bill.Fed Audit Treasury

The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO’s ability to perform an audit.

Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.

HuffPost reporter Sam Stein lodged what he called a “formal complaint” against the ground rules. The complaint was noted and the briefing began.

Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas), a senior Treasury official said he is intensely opposed to it.

The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.

He said he supports full disclosure when it comes to the scale of Fed lending and wouldn’t draw a bright line around auditing certain activities, but wants to make sure it maintained its independence.

The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO’s ability to perform an audit.

Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.

HuffPost reporter Sam Stein lodged what he called a “formal complaint” against the ground rules. The complaint was noted and the briefing began.

Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas), a senior Treasury official said he is intensely opposed to it.

The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.

He said he supports full disclosure when it comes to the scale of Fed lending and wouldn’t draw a bright line around auditing certain activities, but wants to make sure it maintained its independence.

A lack of independence, he said, could lead to inflation and otherwise undermine progressive priorities.

He said, however, that he would be supportive of efforts that would help the Fed earn back some of the credibility it has lost over the past few years.

HuffPost asked if central bank liquidity swaps — foreign currency trades worth hundreds of billions of dollars — should be subject to an audit. The official said that the identity of the countries that received dollars was made public as was the amount each got. It worked well and was good policy, he said, and opening it to audit could undermine its future effectiveness.

The purpose of the swaps, he said, was to make sure that foreign central banks had enough dollars to meet their obligations. The effort kept interest rates low, he said.

A member of Congress, told of the unnamed Treasury official’s comment, asked not to be named and said that Geithner, a former Fed president, should recuse himself from Fed audit legislation discussions, given that the audit would cover his own actions during the crisis.

And Rep. Grayson said he finds Treasury’s opposition to the audit troubling. “There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street,” said Grayson. “And opposing a measure that passed overwhelmingly in the House with bipartisan support at the [Financial Services] Committee level, based up on legislation that now has 317 cosponsors in the House, shows that the president may be getting bad advice.”

The idea that the Fed’s mission would be undermined by an audit, said Grayson, “is a scarecrow erected by people who want to cover up the actions of the Fed for their own purposes, including those who actually have worked at part of the Fed, to prevent accountability at any cost.”

Geithner served as president of the New York Fed during the financial crisis.

“It’s interesting that the Fed regards the simple fact that people find out what it does as somehow being unduly restrictive. We are a government of laws, not of men,” said Grayson.

“It’s certainly no surprise that banking insiders at Treasury don’t want transparency at the Fed,” said Jesse Benton, a spokesman for Rep. Paul. “They are wrapped up in the central bank shenanagins too, and do not want their wheelings and dealings out in the open any more than Alan Greenspan or Ben Bernanke,”

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