Zachary Roth January 8, 2009, 4:21 PM

As regular Muck readers know, we’ve been tracking the transparency — or lack thereof — of the Federal Reserve’s program to buy up $500 billion worth of mortgage-backed securities in an effort to boost the housing market.

And today it’s worth focusing on the issue of conflicts of interest.

The four outside investment firms hired by the Fed to manage the program — Blackrock Inc., Goldman Sachs, Wellington Management, and PIMCO — began buying up assets this week. So one assumes that the conflict of interest provisions that the Fed has said it has in its contracts with the four companies must be firmly in place by now.

But the Fed still is telling us almost nothing about what those crucial provisions entail. A department spokesman did not respond to a call from TPMmuckraker requesting information on what the Fed is doing to guard against conflicts of interest among the investment firms managing our money.

So far, all we know on the subject is what the Fed told us in a fact sheet posted last month on its website:

What measures will the Federal Reserve take to ensure that an investment manager implementing the MBS program will not have an unfair advantage relative to other market participants due to the information it receives about the MBS program?

Each investment manager will be required to implement ethical walls that appropriately segregate the investment management team that implements the Federal Reserve’s agency MBS program from other advisory and proprietary trading activities of the firm. The New York Fed will monitor each investment manager’s compliance with this requirement.

What sort of “ethical walls”? How will they work? How will the Fed monitor each investment manager’s compliance? (After all, the Treasury doesn’t appear to be taking its duty to monitor similar conflicts with TARP money all that seriously).

We’re still in the dark.

It bears repeating: this isn’t an abstract issue. The potential for these firms to improperly use, in their other investment work, the information they’ve been granted access to is enormous. Relatedly, the Fed’s broader stonewalling on the structure of the contracts (or anything to do with the contracts whatsoever!) means we have no guarantee that the firms are being incentivized to get taxpayers the best possible deal.

Bailout, Federal Reserve, Wall Street