Current Board of Governors

(Best Syndication News) Despite a pending lawsuit, the Federal Reserve refuses to provide the names for those they loan $2 trillion to. The Federal Reserve, a private central bank created in 1913 to look out for the interest of the bankers, was lambasted by Presidential Candidate Ron Paul in his 2008 run for being less than transparent.

When the Fed was created there were worries that the central bank would be used to provide funds to member banks, like JPMorgan Chase, to purchase assets during economic busts. Bloomberg News is now suing the Federal Reserve under the Freedom Of Information Act to find out who they loaned the money to. According to the business news network “The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers.”

How The Banks Control The Fed

Although the government has pledged to be “transparent” with regards to the $700 billion bailout approved two months ago, the private Federal Reserve Bank has not been so forthright. Neither Congress nor the American people know who the loans were made to or what securities the banks are pledging in return.

The Federal Reserve is a separate entity from the Government and does not have to answer to Congress nor the President. Although the President does choose the 7 Board of Governors and the Senate votes to approve them, that is where their control ends. Once appointed they can not be fired.

The member banks, such as Bank of America and Citigroup, have more control over the Federal Reserve through the 12 Regional Federal Reserve Banks (branches) and Presidents. The banks choose the majority of the Board of Directors which chooses bank Presidents to represent them at the Federal Open Market Committee (FOMC). Because of the split in power the Fed is considered a quasi-government / private central bank.

As shareholders the member banks are paid a 6 percent dividend each year. Typically the Federal Reserve transfers money from thin air (sometimes referred to as fiat money) to the government and the government transfers treasury notes to be paid with interest over time. This is how the Federal Reserve makes money from the taxpayer and this is how the $700 billion bailout worked.

Is The Taxpayer Responsible For The Loans?

It is unclear from the report by Bloomberg whether the government took possession of the money, thus backing the loans with taxpayer money. The loans could have been made directly from the Federal Reserve. Since the banks recently quit loaning money, the Fed announced they would be making direct loans to businesses via commercial paper.

The Bloomberg article suggests that the loans do not fall under the $700 billion Troubled Assets Relief Program (TARP). But there are still questions of transparency. “The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

The taxpayer responsibility is not clear either. If the $2 trillion in loans was made outside the purview of Congress then why would the taxpayer be on the hook? Was their a swap for treasury notes for Federal Reserve notes? Nothing indicates that there was.

By John Waters
Best Syndication News Business Writer