Why are the Fed and SEC keeping secrets?

By William D. Cohan

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 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 -- 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, memos and e-mails 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 -- say, before my books were finished and published -- 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, unorganized documents and invited me to a warehouse in Pennsylvania to take a look. After an hour or so, the clerk asked me if I was done with my review. (Eventually, I persuaded the SEC to ship the boxes -- at my expense -- to its office in Manhattan, where I spent months poring over them.)

Zilch, Nada

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 U.S. ambassador to France. I opened the envelope and discovered that most of the 10 or so pages had been redacted.

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 Sept. 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.

I was hoping to discover how that whole thing went down at the time, and how Goldman and Morgan Stanley got the Fed's blessing but Lehman Brothers Holdings Inc. did not. Also I was interested in Goldman's interactions with the Fed since that fateful moment. My hopes were raised further when I heard from people at the firm that Goldman had reviewed the contents of what was being sent to me and that its executives seemed worried about it.

Nothing New

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 on a quarterly and annual basis, 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 December 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? 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 percent from the year before? Or that Goldman's book of commercial and industrial loans was $7 billion at the end of 2011, up dramatically from the $829 million it held at the end of 2010? Or that the firm's stash of mortgage-backed securities -- now $1.37 billion -- had nearly doubled what it had at the end of 2010?

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.

But let's not pretend that the Fed's carefully scripted, and untimely, release of a disk of public information to me is even remotely the way FOIA is supposed to work. Where are the documents and e-mails about how Goldman was allowed by the Fed to become a bank holding company? Where are the documents from the SEC about Goldman? Where, for that matter, are the SEC documents related to the short-dated, out-of-the-money puts that investors spent millions of dollars buying in the last week of Bear Stearns's existence? The SEC said it was investigating who bought and sold these puts, but it has never made the results of its investigation public despite my FOIA request.

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.

William D. Cohan, a former investment banker and the author of "Money and Power: How Goldman Sachs Came to Rule the World," is a Bloomberg View columnist. The opinions expressed are his own.

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