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While the Wikileaks dump of secret diplomatic got more publicity, the Federal Reserve’s reluctance release of data on details of what it was up to in the bailout is actually the bigger story.

It’s a giant step towards the direction of democracy in a financial system that hasn’t had any.

What are we finding out? For one thing, just how much dishonesty is built into our knowledge of the financial system. Because corporate leaders never expected the data to be released, they lied, mischaracterized or downplayed their reliance on the Fed’s largesse.

Aaron Elstein lays it out at CrainsBusinessNewYork.com in a blog post headlined `Whoppers from the Bailout Binge’, (ht the Audit, which provides an excellent roundup of Fed dump coverage).

“In some cases,” Elstein writes, “the actions taken by companies jarringly contrast with their executives’ public comments about the bailout program.”

Along with the stunning secrecy that has surrounded the process and the dishonesty of the corporate recipients of the taxpayers’ generosity, a couple of other main themes emerged from scrutiny of the Fed data.

First, not only did U.S. taxpayers come to the aid of large European banks, they also gave emergency loans to many of the biggest U.S. businesses, like GE, Verizon and even Harley-Davidson. All of these institutions were deemed too big to fail, or even suffer more than a some sleepless nights’ worth of economic distress in the financial meltdown. About the only entities not deemed worthy of saving in the meltdown were many of the taxpayers themselves who foot the bill for the whole extravaganza. The institutions that dreamed up the toxic loans got a bailout the taxpayers should have read the fine print more carefully, dammit!

Second, the Fed’s $3.3 trillion rescue scheme was rife with conflicts of interests. Members of regional Fed boards sat in on decisions to help out their own institutions, and corporations like BlackRock acted as paid advisers to the process and also bought securities on behalf of clients as part of the Fed’s efforts.

To put what’s happening in perspective, Matt Stoller, former senior policy adviser to former Rep Alan Grayson, the fiery Florida Democrat who recently lost his re-election bid, wrote this fine piece in Naked Capitalism.

When our government institutions fail us through incompetence or corruption – the financial collapse being Exhibit A – what is the solution? That’s the question I posed a few weeks ago.

The Tea Partyers increasingly seem to advocate getting rid of government altogether, or at least the federal government. They (and the health insurance industry) are getting a lot of mileage these days by arguing that the Wall Street debacle shows government cannot be trusted to regulate health care. It’s not a crazy argument, but their solution is.

When government fails, the answer is not to get rid of government, but to force it to work better. How?

To start, citizens should be given “standing to sue” the federal government. It might surprise you to learn that the courts have often rejected the right of citizens to go to court to enforce state and federal laws. When I worked for Congress Watch, the D.C.-based lobbying group founded by consumer advocate Ralph Nader, back in the late 1970s, one of our top goals was to make sure that when Congress passed a law, no matter the subject, it gave Americans the right to sue if a federal agency failed to enforce that law, conducted itself in an arbitrary manner, spent taxpayer money improperly, or if the law was unconstitutional. We were often unsuccessful, defeated by lobbyists for big business who hoped to later subvert the agencies with impunity. Nader has written frequently about this tool of democracy, and it’s also covered in an excellent biography of the Nader consumer organizations by David Bollier that is now available online.

Can you imagine how much economic damage could have been avoided if citizens had been able to sue the federal agencies that unilaterally stopped regulating the Money Industry over the last decade?

A lot of Americans don’t like litigation – because they have never seen how it can work to protect their interests as consumers or taxpayers. But suing the government is a crucial, even life-saving right that is part of the law in some states, including California. For example, my colleagues at Consumer Watchdog and I sued the California Department of Managed Health Care when it suddenly started permitting HMOs to evade state laws and deny autistic children medically-necessary treatments. The agency’s misconduct began after intense behind-the-scenes lobbying by the heath insurance companies. The trial will be held this fall in a Los Angeles Superior Court and based on a recent preliminary ruling by the judge, we are looking forward to forcing this renegade agency to follow the law.

No doubt the prospect of litigation against the government raises fears of wasted taxpayer resources. But court rules allow judges to block truly frivolous cases. And I believe the costs would be more than offset by the benefits to Americans.

Standing to sue is one of many proposals for systemic reform that you don’t hear much about, because they aren’t sexy. They involve changes to the internal mechanisms of government. But if they were adopted, government would operate far more effectively and with much greater accountability to the public.

Around the Web: Bigger Than Wikileaks

Don’t Dump the Government, Sue It!