In a better world, the Pulitzer Prize for editorial writing this year might have gone to the organization that wrote a judicious series of articles examining the tension between desirable everyday transparency in banking and the protective secrecy that on occasion is suddenly required to stem a financial panic; a series which, in the process, explained why, after not experiencing a banking panic for 75 years, the US confronted a desperate one in September 2008.

Alas, there was no such series.  The closest anyone came to writing anything like it was a low-key 3,000-word article by former Washington Post reporter John M. Berry that appeared in the controlled circulation magazine International Economy in February – “Bloomberg vs. the Fed: Was the news organization excessive in its demands for central bank transparency?”

In fact, no prize was awarded for editorial writing this year (the winners were announced last Monday) – and thereupon may hang a story.  I am not aiming here to pry secrets from the Pulitzer board, but rather to connect up three or four otherwise unrelated circumstances.

A notable feature of the past few years has been the boisterous Bloomberg News campaign against the Governors of the Federal Reserve Board, conducted under the banner of the Freedom of Information Act.  The news service began asking the Fed about the recipients of its emergency lending after the forced sale of Bear Stearns to J.P. Morgan in March 2008.  As the financial crisis deepened, Bloomberg demanded; the Fed didn’t want to say, at least not any time soon.  When the Fed declined to reply, Bloomberg sued, in November 2009.

In its legal briefs, the Fed responded with an exposition of its role as lender of last resort.  In a financial panic, it explained, otherwise-solvent banks and other financial institutions (shadow banks, in current parlance) can be forced to sell assets at fire-sale prices to meet the demands of depositors and other funders.

The antidote had been well understood since the time of Walter Bagehot (whose 1873 classic, Lombard  Street: A Description of the Money Market, codified the modern understanding of central banking): to stem a panic, the government should lend freely, but at a penalty trade, against good collateral, in the expectation of being repaid once calm is restored.

Bagehot might have added – but he didn’t – a further stricture: guard carefully the identity of those getting help, for to acknowledge weakness in particular instances would be to create what central bankers call “stigma” – the equivalent of pouring fuel on the fire.

The Fed’s arguments appealed to practical types. They knew that it was only after the BBC reported in September 2007 that Northern Rock bank was receiving emergency aid from the Bank of England that a run began – the first on a British bank since 1866.

The Bloomberg suit was quickly joined by the Associated Press, Reuters, The Wall Street Journal and The New York Times; Fox News filed a separate action; and the Clearing House Association, whose members are the eleven biggest financial institutions in the United States, joined the Fed.

In August 2009, Chief Judge Loretta Preska, of the Southern District of New York, found for the news media:  the Fed wasn’t entitled to an exemption from the Freedom of Information Act. An appeals court in March 2010 agreed:  if the Fed wanted a special dispensation, it would have to ask for one from Congress.

So in March 2011, its appeals exhausted, the Fed finally released the details of its discount- window lending in 2008 and 2009. Bloomberg and the others wrote stories analyzing the information.  “The long list of borrowers,” wrote Binyamin Appelbaum and Jo Craven McGinty in the Times, “gives a striking impression of a crisis spreading to every last corner of the financial system.” European banks, it turned out, had been among the biggest beneficiaries (through their American subsidiaries); the US Central Federal Credit Union had received dozens of loans, exceeding several billions of dollars at a time.

Bloomberg began a series, The Trillion Dollar Secret, clearly designed to be an entry in this year’s Pulitzer Prizes. (Amanda Bennett, Bloomberg’s executive editor for projects and investigations, left the 18-member Pulitzer Board last fall after completing a term to which she was elected in 2002 as editor of the Philadelphia Inquirer. She was replaced by Robert Blau, Bloomberg’s managing editor for projects and investigations.)  And in December, Bloomberg’s  monthly magazine described how “a fresh narrative” had emerged from the 29,000 pages of Fed documents obtained under the act.

“Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.”   The Brown-Kaufman proposal to limit the size of banks had been defeated by Congress, the article noted; the much less aggressive Dodd-Frank Act has passed into law instead. Some of the account’s  numbers were immediately challenged as having been inflated – $7.77 trillion “committed” as opposed to $1.3 trillion in loans actually made.

The Fed itself made an unusual response to a major premise of the Bloomberg campaign in the form of a four-page staff memo (without ever mentioning the organization by name) that chairman Ben Bernanke sent to Congress:

It is true, generally, the names of the counterparties and borrowers from the emergency facilities were not immediately disclosed, consistent with general central banking practice.  Releasing the names of these institutions in real-time, in the midst of the financial crisis, would have seriously undermined the effectiveness of the emergency lending and the confidence of investors and borrowers.  These matters were discussed extensively at the time, in the press. And the Chairman and other members of the board discussed them numerous times in hearings before Congress.

Bloomberg responded with a lengthy defense of its reporting, and the issue faded from view – until last week, when “The Trillion Dollar Secret” didn’t turn up among the finalists in any of the Pulitzer awards. A Bloomberg spokesman declined to say whether the series had been submitted.

(None of the ruckus discouraged Dylan Ratigan, a talk show host for MSNBC, or the Huffington Post: both chimed in in January with FOIA requests of their own for transcripts of Federal Open Market Committee meetings during the crisis. Last week MSNBC reported that the Fed had posted on its website in early March some 7,000 pages of documents, covering the period from 2007-2010 – with all but the pleasantries redacted. It was another episode in what the WSJ termed “the long running battle over Fed transparency.” The central bank releases full transcripts with a five-year lag.)

One way to think of Bloomberg vs. the Fed is as a contest between representatives of two polar temperaments of present-day journalism – populist skepticism and civic involvement – as personified by Mark Pittman, the Bloomberg investigative reporter who filed a Freedom of Information Act request, and John M. Berry, the long-time Fed-watcher, who wrote the story up for International Economy. The remarkable thing is that, until Berry quit in in the spring of 2009, both men were employed by Bloomberg.

Pittman was a charismatic figure, a football linebacker in high school who took a part-time job as an Oklahoma ranch-hand to supplement his wages as a reporter for the Coffeyville, Kansas, Journal. After working his way up in a series of newspaper jobs (the Rochester, NY, Democrat & Chronicle, the Middletown, NY, Times-Herald-Record), he joined Bloomberg News in 1997, and earned a reputation as a fun-loving, yarn-spinning, whiskey-drinking beat reporter who linked a photo of folk-singer Woody Guthrie to his outgoing messages.  In 2007 he won a Gerald Loeb Award for a prescient series of articles on the mortgage industry.  That Pittman died, at 52, not long before his suit was won, only heightened the drama of his life. Columbia University professor Joseph Stiglitz called him “one of the great financial journalists of our time.” His colleague Bob Ivry, delivered a moving eulogy.

Berry, also a celebrated journalist, is close to the opposite end of the spectrum. Having begun as a reporter for the Providence Journal, in 1962, he earned a Congressional Fellowship from the American Political Science Association and served for a time in Senate and House offices.  After working for Business Week, Time and Forbes, he joined The Washington Post, in 1979 and remained there, dean of the corps of newspaper specialists who covered the Fed, until leaving in 2004 to become a Bloomberg columnist. Berry doesn’t write the kinds of stories that win prizes; he lives for his sources and readers, who include economists and bankers around the world.  He is proud to have been the only reporter invited to every August gathering in Jackson Hole by the Kansas City Federal Reserve Bank (that is, until he switched organizations); proud, too, to have convinced William Greider, former national editor of the Post, of the centrality of the Federal Reserve System to American life (even though Greider became, until recently, a fierce critic. (He wrote the landmark Secrets of the Temple.)

Differences of this sort in point of view exist in all major new organizations. Ordinarily they are mediated by top editors, in the manner of parents of quarrelling siblings.  But the circumstances in which Bloomberg undertook its crusade against the Fed’s secrecy at the absolute height of the crisis were oddly reminiscent of the familiar movie device known to aficionados as Hey-Let’s-Put-on-a-Show!  As described by reporter Alan Feuer in an exuberant story that appeared in the Times, not long after his paper joined the fray:

The critical lawsuit challenging that mystery of finance known as the Bailout started, oddly enough, with a casual newsroom chat.

Mark Pittman, an investigative reporter for Bloomberg News, had filed a Freedom of Information Act request, with the Federal Reserve Board, seeking the details of its unprecedented efforts to funnel money to the collapsing banks of Wall Street.  Mr. Pittman, sometimes known as Bloomberg’s Yoda for his Jedi-like command of economic issues, had quietly surmised that the Fed was holding tightly to the secrets of the bailout. So he was hardly surprised when, after four months, it had failed to even answer his request. He was nonetheless annoyed. One day, even grumpier than usual, he approached his boss, Amanda Bennett, as she stood talking in the company’s East Side newsroom with an in-house lawyer named Charles Glasser.

“Pittman was this big shlumpy guy and he was wandering around going, ‘Argh argh argh,’ ” Ms. Bennett said recently. “So we asked him, ‘What’s with your FOIA?’ And Mark says — he used some colorful language — ‘They won’t answer us.’ ”

“That was when we all sat down and said, ‘So what do we do? They can’t just get away with not answering us,’ ” Ms. Bennett recalled. “Charles said, ‘You know, I suppose we could just sue the Fed.’ So we went to Matt” — Matthew Winkler, Bloomberg’s executive editor — “and said, ‘What do you think about us suing the Fed?’ ” As she recounted this story, Ms. Bennett punched her left palm with her right fist — precisely, she explained, as Mr. Winkler had. She added, “He loved it.”

… Whatever the results, Ms. Bennett and her investigative team have walked away from the experience with their tribal energies revitalized.

“You can’t know how exciting and explosive it’s been,” she said. “This wasn’t some plan where we said, ‘We’re going to file the FOIA, then we’re going to wait, then we’ll check it and our ultimate goal is to sue the Fed. ‘

“It came up spontaneously. It’s like what it was thirty years ago. Back in the days when journalism was exciting – really exciting.”

Exciting, that is, to everyone but Berry.  Within a few months, he found his freedom to express   his views as a columnist severely curtailed; his editors no longer would approve his columns.  In April 2009 he resigned.

In his International Economy article, Berry laid his customary emphasis on the craft of central banking.  After invoking Peter Fisher, former manager of the New York Fed’s open market trading desk to describe the stigma that even healthy banks suffered when they were thought to be borrowing from the Fed in situations of general duress, Berry explained the ingenuity with which Fed officials wired around the stigma problem in the run-up to the crisis, in December 2008, as sources of short-term funding (repurchase agreements by money market funds, for example) were becoming more sensitive to reputational issues.

The Fed sought to encourage borrowing by creating the Term Auction Facility at the New York Fed rather than the discount window.  Using it, banks were able to approach the Fed collectively, rather than one by one, and avoid the stigma, and they could borrow for 28 days rather than overnight and at an interest rate determined by the bidders rather than the Fed.  This worked well, and the Fed reported how much was lent and at what interest rate. Later other facilities were set up to address specific problems in different segments of the crisis-ridden financial markets.  Again, all the details were reported except the names and amounts each institution borrowed.

(A quartet of economists, three of them associated with the New York Fed, later calculated that banks were willing to pay a premium of at least 37 basis points [hundredths of a percent of interest] and, after Lehman Brothers’ bankruptcy, 150 basis points, for the  anonymity of the TAF rather than borrow from the more visible discount window.)

In the end, the basic difference of opinion in Bloomberg vs. the Fed is as simple as this:  the Fed was trying to save the financial system from collapse; Bloomberg, by deeds if not by words, argued in favor of letting it go, in the hope that collapse would lead eventually to a safer system. Here’s the gist of it:

Bloomberg:  While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest that taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger [that is, it maintained entities too big to fail].

Berry:  It’s certainly true that some of the biggest banks have gotten bigger, as some pretty big ones, such as Wachovia, failed and were absorbed by larger institutions.  Again, however, Bloomberg never compares that supposed “price beyond dollars” to the price taxpayers – the whole country – would have paid if the financial system collapsed.

The curious thing is that both views have merit – and have been present in every crisis since central banking was introduced more than three centuries ago. In 1978, when banking panics to most people were no more than a dim memory of something they saw once in the movies, Charles P. Kindleberger, a historical economist at the Massachusetts Institute of Technology, undertook to remind readers in the United States of the lessons that had been taught by Bagehot in the United Kingdom a hundred years before.

In Manias, Panics, and Crashes: A History of Financial Crises, Kindleberger wrote that, at the end of the periods of irrational exuberance that were a “hardy perennial” of economic life, central banks inevitably found themselves on the horns of a dilemma:  lend freely to halt the panic or leave the market to its own devices, hoping to improve the chances of preventing future panics. “Actuality inevitably dominates contingency,” wrote Kindleberger. “Today wins over tomorrow.”

(Now in its sixth edition, Manias. Panics, and Crashes has been substantially augmented by Rober Aliber, professor emeritus at the University of Chicago’s Booth School of Business.)

Bloomberg’s populism is surprising, even ironic, given the nature of the firm.  Founded in 1981 as a data base of bond prices by former Salomon Brothers partner Michael Bloomberg (today the third-term mayor of New York), the company grew to become a hugely profitable player in the financial data industry, mainly by bundling analytic software with its data bases.   By the early 1990s Bloomberg’s success rivaled that of Dow Jones & Co., owner of The Wall Street Journal.  By the mid-’90s, it had surpassed the older company.

In 1991, Bloomberg founded a business news service to augment its analytics and their underlying data. Bloomberg services were distributed to its customers through proprietary computer terminals, known as “Bloomberg boxes,” for which customers now pay around as $1,500 a month (some 300,000 orf them are thought to be installed worldwide).  News content was given away for free to newspapers. Founding editor Matthew Winkler, a former Wall Street Journal reporter, hired journalists by the score, assembling a news service that today numbers more than 2,000 persons around the world; includes the former McGraw-Hill newsweekly now renamed Bloomberg BusinessWeek); and whose human inventory resembles, in certain respects, San Simeon, the legendary mansion on the California coast where publisher William Randolph Hearst stashed acquisitions from his European vacations, sometimes without opening the crates.

In the hands of good editorial writers, Bloomberg vs. the Fed had the makings of a really good civics lesson.  The public understanding of central banks as lenders of last resort in a panic could hardly be more important than it is in the present day. The arguments and counter-arguments each side’s lawyers wrote would have furnished the material for some serious discussion over several years.

Instead, Bloomberg View, the company’s newly established editorial writing arm, offered instruction to the Europeans on how to cope with their debt crisis. What instruction?  It’s anybody’s guess.  A Pulitzer jury of five editorialists thought enough of the Bloomberg entry to select it as one of three finalists – Paula Dwyer and Mark Whitehouse had dealt with important technical questions in ways that the average readers could grasp, the jurors said – but the Pulitzer board declined to make an award.  Perhaps it sensed the trouble in Bloomberg’s chameleon-like positions.