Perils of condoning Washington's secrets

Getting what should be public information about major Wall Street firms can be maddeningly difficult.

Bloomberg News discovered this in its ultimately successful effort to get information on the $1.2 trillion (Dh4.4 trillion) in "secret loans" the Fed doled out during the financial crisis. And I've had no small experience of it myself.

As I started each of my three books — about Lazard Freres, Bear Stearns and Goldman Sachs Group Inc — I submitted Freedom of Information Act requests to the appropriate government agencies (the Securities Exchange Commission, the State Department and the Federal Reserve) to obtain whatever documents they had about these companies and their senior executives.

I was hoping to find, among other nuggets, details of enforcement actions, or settlements that were reached where the firms "neither admitted nor denied" guilt, or other documentary evidence of the coziness that has for too long existed between Wall Street and Washington.

Sadly, getting this information in anything like a timely basis has been nearly impossible. At first, when I asked the SEC about documents related to Lazard's role in the Hartford-Mediobanca scandal starting in 1968 and ending in 1981, the agency told me it could not release the information. When I reminded the FOIA administrator that the SEC had already released the information, years before, to another journalist, the agency dug up the 40 boxes of unindexed, unorganised documents and invited me to a warehouse in Pennsylvania to take a look. (Eventually, I persuaded the SEC to ship the boxes — at my expense — to its office in Manhattan, where I spent months poring over them.)

But that bit of beginner's luck turned out to be a fluke. To this day, the SEC has given me nothing — zilch, nada — about Bear Stearns or Goldman Sachs. After the Lazard book was published, the State Department sent me a thin file that was, supposedly, what it had in its possession about Felix Rohatyn's three years as the US ambassador to France. Most of the ten or so pages had been redacted.

Package

Last December, nearly nine months after my Goldman book was published, I received an official-looking package from the Board of Governors of the Federal Reserve System. Slapped on the outside of the envelope was a bright orange sticker about keeping the contents — a computer disk — away from "magnets and electric motors" and, of course, the warning "Do Not X-Ray." This, I suspected, was my long-awaited document file about Goldman's dealings with the Federal Reserve in the days leading up to September 22, 2008, when it, along with Morgan Stanley, had the good fortune to be allowed to become a bank holding company with lifesaving unlimited access to short-term funding. No such luck. On the disk was nothing more than a bunch of obscure — but publicly available — Federal Reserve documents about the details of Goldman's assets and liabilities, everything from the kinds of loans the firm had been making to the tenor of its derivatives book to whether the real-estate loans it owns were backed by commercial properties or residential properties.

The documents contained a bunch of detailed numbers (without explanation) about the kinds of risks Goldman was taking at a moment in time, thus prying open ever so slightly the firm's black box.

For instance, who knew that at the end of Dec-ember 2011 Goldman had $44.2 trillion in the notional amount of derivatives contracts on its books, about $1.3 trillion more than it did in 2010?

Insurance

Or that $36 trillion of that amount was for contracts of less than one year in tenor? Or that Goldman had $19 billion in insurance underwriting assets, up nearly 40 per cent from the year before?

Although I still have no idea how Goldman makes its money, I guess it is interesting to know that the government produces mind-numbing documents containing columns of numbers and then puts them on websites buried on the internet.

If our government agencies continue to do everything in their considerable power to keep hidden information that belongs in the public realm, all the regulatory reform in the world won't end the rot on Wall Street.

— Bloomberg