Lack of Disclosure

[RoyGBiv]

I want to stop for a moment to offer a suggestion of what the lack of disclosure as to who is receiving the loans from the bailout is all about. Be clear that this is a suggestion based on Paulson's utter lack of ability to communicate effectively viewed through a lens of historical comparison. Finally, understand that I am in no way saying this is justification or a proper course of action, as I will make clear in a moment.

During the banking crisis of Hoover's administration, the RFC issued loans to failing banks to try to keep them afloat. To grossly summarize the effect, this failed to stem the tide of bank failures, and people began to ask why when it had seemed to be working.

The first answer that sprang to mind was that at one point during the program's operation, a list of those banks receiving loans was leaked and eventually published in newspapers across the country. The narrative of this explanation suggests that these banks, which were already hurting, were suddenly subject to bank runs because their application for a loan to remain solvent indicated to depositors that their money wasn't safe. Prior to this, the public at large didn't have much of an idea of which banks were failing or which were safe, so they went on rumor alone. The publication of the list seemed to be one of the first pieces of solid information the public had that allowed them to make decisions about where to put their money.

This is a convenient narrative, one that many conservatives cling to, especially ardent supply-siders who want to deny that any part of their economic philosophy might not be correct and those who think all the actions of government should remain secret. However, it is not precisely true. The list was published, and bank runs did take place in the immediate thereafter. Hoover and many in his administration blamed the list being leaked for their inability to stem the tide of the Depression.

However, if you look at the bank runs from the summer of '32, starting out West, and into '33 and Michigan, what you find is a multitude of problems that ignited the runs. The loan program, for one, was vastly under-funded. Restrictions on who could apply for the loans were far too severe, almost to the point of making literal the joke about the only people who qualify for loans are people who don't need them.

And, most importantly, the program was for all intents and purposes abandoned just as it was beginning to make a dent.

Paulson and others have suggested (and they may have said this outright, but I can't find it if so) that a potential negative effect of open disclosure of who receives the loans is that investors would take their money out of those institutions, worsening the problem, insuring their failure. I am driven to believe that Paulson has swallowed this "the list caused the runs" narrative and is reacting to it.

I think he's wrong and that the government has an obligation for disclosure, but if this is his reasoning, it wouldn't surprise me.

(Disclaimer: I wrote this without notes, from memory, which is why it is lacking names and quotes and such. )

[ladjf]

1. The "bailout' is begging to look like Bush's last "big heist".

I recommend that the doors be closed temporally on the money handouts. Wait for Obama to get control of the situation.

[niyad]

2. k & r for this most important topic

it is OUR money, and we have every right to know where each and every penny of it goes, and why.