This archived content originally appeared at, the predecessor site to, and does not carry the sponsorship of the Cato Institute.

The Fed Wants Secrecy and the US Court of Appeals for the DC Circuit Gives It To Them

“I personally have always been a big believer in providing as much information as you can to help the public understand what you’re doing, to help the markets understand what you’re doing, and to be accountable to the public for what you’re doing.” Federal Reserve Chairman Ben Bernanke, Press Conference, April 27, 2011.


One of the most attractive features of a free banking environment would be in reducing the power of a secretive government agency. There is a good reason that one of the most well-known books on the Federal Reserve was given the name Secrets of the Temple.

I have some personal experience with this issue and that all came to a head this past week in my Freedom of Information Act (FOIA) case as reported by Dow Jones Newswire (3 June 2011):

A federal appeals court ruled Friday that the Board of Governors of the Federal Reserve System doesn't have to release records stemming from the 2008 rescue of Bear Stearns.

The U.S. Court of Appeals for the District of Columbia Circuit rejected a Freedom of Information Act lawsuit that sought details of the Fed's March 2008 decision to authorize an emergency funding arrangement for Bear Stearns through J.P. Morgan Chase & Co. (JPM).

Plaintiff Vern McKinley, a former FDIC official, was seeking details on the Fed's conclusion that emergency funding for Bear Stearns was necessary because the firm's collapse would be a contagion on fragile financial markets.

The appeals court said the public release of the information would undermine the ability of the Federal Reserve Board to perform its functions.

"Disclosure of the type of information withheld here, therefore, would impair the Board's ability to obtain necessary information in the future and could chill the free flow of information between the supervised institutions and the Board and Reserve Banks," the court said.

See the court’s full opinion.

For the past two years, with the help of the legal team at Judicial Watch I have been trying to get some basic information on the March 2008 Bear Stearns bailout: essentially what severe consequences would have flowed from allowing Bear Stearns to fail. Although we have found some interesting details, the Fed and the Justice Department have fought us every step of the way regarding full disclosure. The extent of resources the government is willing to put into such a fight is clear from the first page of Judge Henderson’s opinion. You have the two attorneys from Judicial Watch on my side followed by the details of the SEVEN attorneys from the Fed and Justice Department:

Michael Bekesha argued the cause for the appellant. Paul J. Orfanedes was on brief.

Samantha L. Chaifetz, Attorney, United States Department of Justice, argued the cause for the appellee. Tony West, Assistant Attorney General, Beth S. Brinkmann, Deputy Assistant Attorney General, Mark B. Stern, Attorney, Katherine H. Wheatley, Associate General Counsel, Board of Governors of the Federal Reserve System, and Yvonne F. Mizusawa, Senior Counsel, were on the brief. R. Craig Lawrence, Assistant United States Attorney, entered an appearance.

My intent here is not to go into great detail on the case, but to highlight the predominant issue as I saw it. As background, in the early briefings for the case we discovered what we thought was a big hole in the Fed’s case. The Federal Reserve Bank of New York is not a government agency and they are thus not subject to FOIA so they cannot be compelled to disclose the details of their operations through FOIA law. But we noticed that the Board of Governors in Washington was invoking various intra-agency and inter-agency exemptions to avoid disclosing communications between Washington and the New York Fed. We thought the Fed in Washington was trying to have it both ways, as in this case they seemed to be treating the New York Fed like a government agency so they could invoke inter-agency exemptions.  Obviously, if the New York Fed is not a government agency, then it seemed that these were not inter-agency communications. The Fed did not address this issue in their original brief.

When we made this point, in what might be called a ‘hail mary’ the Fed in Washington responded that the New York Fed was their….’consultant.’ There is under FOIA law what is called the ‘consultant corollary’ which allows for keeping secret ‘intra-agency’ communications between a government agency (the Fed in Washington) and their consultant (the New York Fed in this scenario). Although the idea that the New York Fed, a creature of federal legislation, is anything resembling a consultant (like McKinsey & Co.; Deloitte; Booz Allen Hamilton; or Accenture) is a preposterous notion, the Court of Appeals, seemingly in an effort to defer to the Fed’s wishes on secrecy, bought into the argument.

So the Fed in Washington, enabled by the Obama Justice Department, with all manner of public resources at their disposal and with the agreement of at least one panel of judges on a court of appeals in DC is perpetuating the historical pattern of secrecy at the Fed. I recall that when I began my lawsuit two years ago a former government lawyer colleague of mine, who now works at the Fed in Washington, had an interesting comment upon hearing the story of my lawsuit: “Secretive bastards!” Indeed. 


  • George Selgin

    Let's see: the Fed can't release information regarding firms that it has bailed out, because that would impair its ability to acquire similar information from firms it may wish to bail out in the future. Well, while there is a rationale, though not necessarily a sound one, for the Fed's desiring not to reveal details concerning the firms seeking its aid while a crisis is in progress, no such rationale exists long after the fact. If a firm decides on the grounds of the Fed's past disclosures that it would rather forego being rescued than risk having details concerning its condition at the time of the rescue shared with the public after the emergency passes, the presumption ought to be that the firm knows that its troubles are the result, not of mere panic, but of mismanagement so flagrant that it would rather fend for itself than have the extent of its mismanagement ever made public.

  • Cool stuff.

    How much did your case coincide/draw from the Bloomberg (Pittman/Torres) case against the Fed?

  • Vern McKinley

    Not too much overlap really. Pittman/Torres were mostly looking for the 'what' of the bailouts–what institutions received funds, what collateral was there on the funding, what were the terms of the transactions. I was looking more at the 'why'….supposedly the benefit of bailing out all of these institutions was that we were saved from some grand cascading "contagion" (precise word used by the Fed in the minutes of the Bear Stearns meeting) that would have flattened the financial world. So far I have found no evidence of that contagion.

  • Interesting. Do you have a link for the information you have been able to extract from the Fed on Bear?

  • Vern McKinley
  • RickDiMare

    Vern, great attempt at penetrating the walls of "the temple." Would you have an opinion as to whether Congress will or could Constitutionally take over the Fed's role?

    From what I've learned in this blog so far, the Fed seems to have been formed as a separate private "independent" legal entity so that Congress could regulate money substitutes or "fiduciary media" under the Commerce Clause, particularly so Congress could regulate problems associated with fractional reserve practices.

    Or, do you think perhaps Congress can't get involved with money substitutes because its main job is to provide real money under the Coining and Borrowing Clauses?

    On the other hand, with the advent of electronic payment systems, and the ability of Congress and the Treasury Department to put money exactly where it's needed, anytime, almost instantaneously, do we even need the Fed?

    • Vern McKinley

      Last question is easiest, see: Lawrence White, "IN WHAT RESPECTS WILL THE INFORMATION
      AGE MAKE CENTRAL BANKS OBSOLETE?" from Fall 2001 Cato Journal. Not sure if he has updated this.

      Let me respond in a bit on the others (I live 7 time zones ahead of east coast and will need to spend some time on it tomorrow).