May 28, 2018
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Why we all should welcome Bernanke’s complaints

By Matthew Winkler, Bloomberg News

Federal Reserve Chairman Ben S. Bernanke’s response to Bloomberg News reporting regarding the Fed’s emergency lending to banks and other companies, although hardly complimentary, sounded a welcome note of engagement by the U.S. central bank in issues that frame one of the most important financial stories of our time.

While Bernanke’s letter, posted Tuesday on the U.S. central bank’s website, didn’t name Bloomberg, it said recent news articles about the Fed’s lending contained “egregious errors.” It cited complaints related to facts unearthed and presented by Bloomberg reporters, as well as how others have mischaracterized those findings.

Bloomberg stands by its reporting. My purpose, in this essay, isn’t to debate the Fed chairman, but to praise him.

Under Bernanke, who noted that transparency “increases democratic accountability” during his November 2005 nomination hearing, the central bank has taken several steps toward openness.

The minutes of the Federal Open Market Committee’s November meeting, released last month, included more information than that panel has ever made public before. Specifically, the Fed released data to help quantify the committee’s sense of uncertainty. The release came after Bloomberg News reported some traders’ views that the Fed’s September policy statement citing “significant downside risks” — with no supporting data — had served only to confuse markets.

This month, the Federal Reserve Bank of New York published the contents of a survey it sent to primary dealers, a questionnaire that addressed the probability that central bank policy makers next year will provide more information on their objectives and their assessments of “appropriate monetary policy.”

Such surveys of the 21 firms that trade government securities with the Fed haven’t been made public before, and Bloomberg News in November filed a request for them under the Freedom of Information Act. Instead, information about their contents sometimes leaked; they are considered potentially valuable glimpses into the central bank’s thinking. Making the actual questions public eases the concern that only certain insiders will get that view.

Beyond these measures, and the promise of still more next year, Bernanke in April began holding quarterly news conferences, a first for a Fed chairman. He also has established a subcommittee of the Fed board to examine additional transparency steps.

These moves contrast with the Fed’s decision-making beginning in May 2008, when the central bank first rejected a Freedom of Information Act request from a Bloomberg News reporter named Mark Pittman. Pittman sought details of the Fed’s emergency lending during the largest financial bailout in U.S. history. The central bank argued that releasing specifics about the borrowers might prompt depositor runs or investor sell-offs, hurting the financial system even further. Bloomberg LP, the parent company of Bloomberg News, sued for the information; News Corp.’s Fox News Network later filed a similar suit.

The Fed’s argument against transparency became harder to sustain by the summer of 2010, as the U.S. Congress was considering an overhaul of financial regulation. Still, senators and representatives from both sides of the aisle have made clear that they weren’t apprised of the lending details even as they voted on the Dodd-Frank law.

Because of the new law, the first specifics of the Fed’s loans finally came to light in December 2010. Pittman, who died in November 2009, never got the chance to see them, or other releases that followed after Bloomberg won its lawsuit.

Those disclosures, the first of their kind by the Fed, formed the basis for more than a score of news stories over the past year, including those Bernanke complained about this week. Those reports, full of information that had not been made public, revealed two fundamental truths:

First, the Fed deserves ample credit for acting in bold, unprecedented ways to save the financial system and the world from a disaster of mind-boggling magnitude. Second, aspects of that rescue make clear that the Fed also merits ample scrutiny about how it operated. Nothing less is acceptable in a world that values transparent markets and governments — and strives toward both.

The extent to which Bernanke’s Fed is willing to engage with such matters — and the chairman’s letter this week shows evidence of real engagement — will only give investors, policy makers and the public more faith in this powerful institution.

We don’t expect to agree always. Regardless, we welcome the frank sharing of views that Bernanke initiated this week.

Matthew Winkler is the editor-in-chief of Bloomberg News.

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