Back in January 2013, when looking at the Fed's 2007 transcripts we stumbled upon something which in a non-banana republic would be the basis of a criminal investigation. What happened, in a nutshell, is that at precisely 8:00 am on August 17, shortly after the infamous Goldman (and other) quant fund blow ups of the summer of 2007 shook the markets, in an attempt to halt the panic selloff in stocks, the Fed announced the following: To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco. Why was this abnormal, and why should it be the basis for a criminal inquiry? Simple. As we also wrote previously, hours before the Fed officially announced its primary credit rate cut, the market soared by a whopping 40 points just after 2 pm without any actual public news crossing the tape. In other words, someone leaked the Fed's decision to a select few just around 2 pm on Thursday, August 16, which can be further confirmed by the continuation of the market's exuberance in the moments following the Fed's announcement. Tthis is a bold accusation, and one we wouldn't make if none other than the Fed subsequently had confirmed that a member of the FOMC had indeed leaked the news of the upcoming rate cut. The leaker in question: the Vice Chairman of the Federal Reserve and then-head of the NY Fed, Tim Geithner himself. From the August 16, 2007 transcript (page 13 of 37) of the conference call preceding this announcement MR. LACKER. If I could just follow up on that, Mr. Chairman. CHAIRMAN BERNANKE. Yes, go ahead. MR. LACKER. Vice Chairman Geithner, did you say that [the banks] are unaware of what we’re considering or what we might be doing with the discount rate? VICE CHAIRMAN GEITHNER. Yes. MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that. CHAIRMAN BERNANKE. Okay. Thank you. Go ahead, Vice Chairman Geithner. VICE CHAIRMAN GEITHNER. Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System—what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about. Judging by the market reaction the day Geithner leaked this confidential, and very market moving information, the banks needed no help in understanding just what the implications of a 50 bps cut would be. We dig up this particular skeleton from the collective archive of forgotten Fed crimes, because as the WSJ reported, in a letter to Janet Yellen, Congressman Jeb Hensarling (R-Texas), chairman of the House of Respresentatives’ Commiteee on Financial Services, expressed “concern for your lack of response to a letter sent to you by the Oversight and Investigations Subcommittee of the Financial Services Committee on February 5, 2015.” But more importantly, Hensarling referred to the probe as a criminal one, saying the Fed’s general counsel dropped the investigation “at the request of several members of the FOMC.” Later, Mr. Hensarling added, the investigation was reopened by the Fed’s Office of Inspector General in March 2013 “only when that office was approached on the matter by a confidential informant.” Mr. Hensarling says that letter requested all records regarding the investigation of the leak, which has also raised eyebrows among top Democrats. “It appears that proper internal controls are not in place to safeguard the confidentiality of FOMC meeting minutes,” Mr. Hensarling wrote in his letter, first reported by Bloomberg News. The Fed declined to comment. According to the press reports, the Fed’s investigation involved alleged leaks of sensitive information to market research firm Medley Global Advisors and The Wall Street Journal. The press reports said the leaks involved detailed accounts of the Fed’s September 2012 policy discussion, including hints about possible action at their December gathering. Mr. Hensarling said in his letter that Congress is “committed to holding the Federal Reserve accountable for its actions and omissions, and to ensuring transparency in its operations.” Is that so? In that case we expect that Congress will also immediately open a criminal probe into Tim Geithner's confirmed leak of market-moving, inside information to at least Bank of America then-CEO Ken Lewis, and who knows how many other individuals, who used this non-public information to illegally enrich themselves at the expense of the general population and all those others who sold into the ramp not knowing what was causing it. That said, we won't our breath: we know just who calls the shots in Congress.