Between the Bloomberg court case demanding FOIA Releases and Congressman Ron Paul’s increasingly popular legislative proposal to audit Federal Reserve programs, it is pretty clear that the Federal Reserve is in full panic mode.

Here are what I think are the likely motivations, in order of increasing plausibility:

Henry Blodget suggests that the Fed, and the banks are concerned that the release of this data will lead to a bank run, as it did with Reconstruction Finance Corporation (RFC) in early 1933.

They are not suggesting that any new problems will be revealed, but that the mere fact that banks have used Fed lending facilities will trigger a panic.

I find this unlikely, simply because there is deposit insurance now, and as such small depositors will no longer freak, as a result now, and the large players already know who is in bad shape, and everyone knows that everyone has availed themselves of these facilities.

It is clear that this is what the banks suggested in their filing on the Bloomberg case, that added transparency will lead to excessive rumors, which is, of course laughable. It is lack of transparency that fosters rumors, so find this argument unpersuasive.

Karl Denninger suggests a scenario, that I consider to be more likely, that the banks and the Federal Reserve have been lying through their teeth, and that the real state of affairs is truly awful, and upon discovery of a program of systemic lies and accounting tricks with the Federal Reserve at its core will cause institutions to implode, much as the discovery that Bear Stearns and Lehman Brothers were lying caused them to implode:

The problem The Fed has is that as the supposed “risk regulator” for the American Banking System it has absolutely refused to do its job of prudential regulation and still is. Instead of demanding that its member banks hold capital against all unsecured lending it has “blessed” models rather than markets. But at the same time it has declared “haircuts” against collateral that make clear that so-called “face value”, or “par”, is a farce.

The Fed is supporting institutionalized lying – that is, the intentional mis-marking of assets. If The Fed was an honest regulator and monitor of market risk it would insist that no bank carry an asset at a value materially higher than its “haircut” off par at the window. After all, the penalty rate for discount window use already discourages banks from coming there; the “haircuts” must (and I argue do) reflect what The Fed actually believes about the quality of these alleged “baskets” of asset classifications.

If The Fed believes that these asset classes have this sort of haircut from face value in the market how does it justify allowing any bank under its jurisdiction holding such “assets” at a higher value on their balance sheet?

(emphasis original))

Mr. Denninger calls this “Racketeering,” and an , “attempt to cover up outrageous and repeated failures to comply with US Securities laws,” I think that he is not far from the truth.

Another possibility that no one has mentioned, is that likelihood that in revealing this information, the Federal Reserve will be revealed to have lied to Congress, and possibly to the US Treasury, in some cases under oath, and that Bernanke does not want to be the target of a grand jury investigation.

Finally, Occam’s razor says that the most likely explanation is usually the simplest, and the fact is that transparency does not serve either the banks or the Federal Reserve.

For the banks, this money would be cast as more bailout, and there would be more pressure on restricting executive pay.

For the Fed, knowledge is power, and by becoming more transparent, the Fed will inevitably become less powerful, and any bureaucracy will fight this tooth and nail.

FWIW, my guess is that the last 3 likely all figure into this, that is the discovery of massive concealed losses, the worry about perjury charges, and simple bureaucratic imperative.