Judge Sheds Light on Fed Reserve Bailout Practices

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Chief Judge Loretta Preska of the U.S. District Court for the Southern District of New York has ruled in favor of Bloomberg News' Freedom of Information Act(FOIA)  request to the Federal Reserve Board, ordering the Fed  to turn over bailout-related documents that name the recipient financial institutions and set forth the assets of, and  the collateral offered  by, the firms that received the government loans.

In her 47-page decision in Bloomberg LP v.  Board of Governors of the Federal Reserve System (Case No. 08-cv-9595), Judge Preska ordered the Fed to search for additional documents at the Federal Reserve Bank of New York, which administers the lion's share of the bailout loan programs, and to produce records previously identified to Bloomberg by the Fed within five days. Judge Preska rejected the government position that compliance with the FOIA would harm shareholders and competitively disadvantage the identified financial institutions, writing: "the risk of looking weak to shareholders is an inherent risk of market participation."

The Washington, D.C.-based defendant is a key player in setting monetary policy and regulates certain banks. The Federal Reserve System embraces 12 regional banks, including the New York Federal Reserve Bank. Bloomberg filed its FOIA request in May 2008, to learn more about the destinations of the emergency $2 trillion in taxpayer-funded loans doled out by the Federal Reserve Board.

No word on whether the government will appeal her ruling to the U.S. Court of Appeals for the Second Circuit.