Why Not Transparency For The Federal Reserve?

It was in July 2008 that IndyMac Bank, F.S.B., was taken over by the Federal Deposit Insurance Corporation (FDIC), the second-largest bank failure in U.S. history according to the Los Angeles Times. The goal of the FDIC was to find a buyer for the bank with as little cost as possible to the FDIC insurance program, however the FDIC said that “based on preliminary analysis, the estimated cost of the resolution to the Deposit Insurance Fund is between $4 and $8 billion.”

So far, so good — but wait until you hear the rest of the story. It raises the question of whether or not the Federal Reserve should finally reveal exact how many billions it gave out in 2008 — and to whom.

The IndyMac Sale

And, in fact, the FDIC did find a buyer for IndyMac. By March 2009 the FDIC announced that OneWest would purchase Indy Mac:

The Federal Deposit Insurance Corporation (FDIC) has completed the sale of IndyMac Federal Bank FSB, Pasadena, California, to OneWest Bank, FSB, a newly formed Pasadena, California-based federal savings bank organized by IMB HoldCo LLC. OneWest will assume all deposits of IndyMac Federal. IMB HoldCo signed a letter of intent with the FDIC on December 31, 2008, to purchase IndyMac Federal.

The 33 branches of IndyMac Federal will reopen as branches of OneWest tomorrow. Depositors of IndyMac Federal will automatically become depositors of OneWest. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of January 31, 2009, IndyMac Federal had total assets of $23.5 billion and total deposits of $6.4 billion. OneWest has agreed to purchase all deposits and approximately $20.7 billion in assets at a discount of $4.7 billion. The FDIC will retain the remaining assets for later disposition.

FDIC and OneWest have entered into a loss share transaction on the single family residential portfolio. Under terms of the loss share agreement, OneWest will continue the FDIC’s existing loan modification program.

Mortgage Modifications

With IndyMac under its wing, the FDIC started one of the first and relatively most-successful loan modification programs then in place. Central to the IndyMac mortgage modification plan was the idea that “borrowers receive a loan modification with a maximum 38% down to 31% housing-to-income ratio through the use of interest rate reduction, amortization term extension, and in some cases, principal deferment.”

In other words, the FDIC loan modification plan for IndyMac became the basis for the Make Home Affordable loan modification effort developed under the Obama Administration.

Transparency

There has always been a question regarding what the agreement with OneWest provided; that is, how much liability remained with the FDIC.

Apparently a video questioning the transaction has been floating around the Web, one has provoked an unusual response from the FDIC. According to the government:

FDIC Director of Public Affairs Andrew Gray said, “It is unfortunate but necessary to respond to blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and OneWest Bank. Here are the facts: OneWest has not been paid one penny by the FDIC in loss-share claims. The loss-share agreement is limited to 7% of the total assets that OneWest services, and OneWest must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets. In order to be paid through loss share, OneWest must have adhered to the Home Affordable Modification Program (HAMP).

The producers of this video perpetuate other falsehoods. The FDIC has not requested to borrow money from the Treasury Department. Indeed, we continue to be funded by the banking industry through assessments, not by taxpayers as claimed in the video.

This video has no credibility. Regardless of the personal or professional motivations behind its production, there is always a responsibility to be factually correct and transparent. The FDIC made available a fact sheet on the day that the sale of IndyMac was announced that details the terms of the contract. It’s too bad that the creators of this video opted to premise it on falsehoods.”

The Bloomberg FOI Suit

For several years Bloomberg News has been asking for the particulars of the Federal Reserve handouts to big banks. When the Federal Reserve refused to provide the information on the Freedom of Information Act (FOI), Bloomberg sued.

As the New York Times explains:

“Narrowly construed, the suit, filed in November 2008, seeks the release under FOIA of documents called term reports. Those reports contain information about the hundreds of billions of dollars the Federal Reserve lent to banks at the height of the crisis — first through its discount window and then through an acronymic soup of emergency programs with arcane-sounding names like the Primary Dealer Credit Facility and the Term Securities Lending Facility.

“While the Fed does customarily release data in the aggregate about its lending — the bank bailout is about $2 trillion, all told — it has always shielded information about specific loans to specific institutions. If released, the documents in this lawsuit would punch directly through that shield: Who got money from the Fed? How much did they get? In exchange for what collateral? And under what terms?” (See: Battle Over the Bailout, February 11, 2009)

If the makers of a video have an obligation to be “factually correct and transparent” then why not the Federal Reserve?

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