One of the most botched cases of conflict of interest abuse by a Federal Reserve official will forever remain the purchase of Goldman Sachs shares by Goldman Board Member, and FRBNY Board Member (the squid likes to keep its Federal Reserve puppets closely supervised) Stephen Friedman: an act strictly forbidden by the Fed itself. The action was so indefensible it led to Friedman's quitting shortly after disclosure of his transgression leaked. Yet the reasons why Friedman managed to effect this purchase of 37,000 shares of GS on December 17, 2008 is because he was granted a "waiver" by the Fed. A month ago, Chairman of the House Oversight Committee, Edolphus Towns sent a rather angry letter demanding an explanation from Ben Bernanke why he had allowed this blatant case of semi-insider trading to occur at the highest echelons of shadow government. Today, we find out that Towns is unhappy with the production provided by the Fed, and concludes "that senior officials had misgivings about granting the waiver but were ultimately overruled" and that "we believe a closer examination of this issue is necessary, especially when Congress is considering increasing the Fed’s powers. In the coming weeks, we will continue our investigation of this matter and will schedule a hearing to learn more from Mr. Friedman and senior Fed officials about how he was permitted to make windfall profits by trading stock in a company he had a role in regulating." We are not so sure there is any room for confusion - after Goldman told its pseudo employees at the Fed to bail it out at the cost of tens of billions in taxpayer money, why is it in any way surprising that those same FRBNY Goldmanites will not be allowed to profit from Goldman's bailout as well? The is nothing than a clear cut case of power and political capture at the very highest level of the country, by the two most collusive entities, whose sole purpose is the confiscation of middle-class wealth, or whatever is left of it, before the administration decides to hike middle-class taxes to a Socialist country appropriate 99%.
From Towns' original letter:
Notably, under a long-standing policy ofthe Board of Governors ofthe Federal Reserve System (Federal Reserve), Mr. Friedman was prohibited from owning shares of any company under the supervision ofthe Federal Reserve. Despite the clear prohibition and apparent conflict of interest, Mr. Friedman requested a waiver1 from the Board of Governors in Washington and was allowed to continue serving as chairman, in direct violation of Fed policy, until a decision on the waiver was made.
In the meantime, on December 17, 2008, despite the prohibition, Mr. Friedman bought an additional 37,000 shares of Goldman Sachs, a company that was under the supervision at the New York Fed. A waiver was granted by the Board of Governors on January 21, 2009.
It is also noteworthy that at the time of Mr. Friedman's dual role, the New York Fed was actively considering the possibility of paying tens of billions of dollars in taxpayer funding to AIG's credit default swap counterparties, including Goldman. In Goldman's case, this counterparty payment was made in November of 2008 and it amounted to roughly $13 billion, courtesy of the American taxpayer.
What makes these transactions and the waiver that the Federal Reserve granted Mr. Friedman even more troubling is that the precise financial exposure Goldman faced from AIG was not publicly known when Mr. Friedman bought the Goldman stock in December of 2008. Indeed, the precise amount AIG paid Goldman was not released until March of 2009, after Congress placed considerable pressure on the Federal Reserve to disclose that information.
Mr. Friedman's dual role at the New York Fed and Goldman, his purchase of the Goldman stock in December 2008, and the Federal Reserve's waiver of its conflict of interest policy after the fact, raise serious questions about the integrity ofthe Fed's operations. [ha ha ha]
Here is Town's just released update in its entirety:
Towns, Lynch Statement on Review of Federal Reserve Documents
Questions remain surrounding decision to grant Friedman waiver
WASHINGTON – Chairman Edolphus “Ed” Towns (D-NY) and Congressman Stephen F. Lynch (D-MA), Chairman of the Subcommittee on the Federal Workforce, Postal Service and the District of Columbia, today released the following joint statement after completing a review of internal Federal Reserve documents related to the Fed’s decision to waive its conflict of interest policy in January 2009 and allow Stephen Friedman to simultaneously own Goldman stock and serve as Chairman of the Board of the Federal Reserve Bank of New York. When the waiver was granted, Mr. Friedman was also on the Board of Directors of Goldman Sachs, a company that was under the supervision of the Fed.
“Two years after the collapse of our nation’s financial system, the Committee continues to examine decisions that were made by the Federal Reserve Board and the Federal Reserve Bank of New York during the height of the crisis in an effort to answer lingering questions concerning that time period. We also believe a critical analysis of these events will improve the provisions included in the financial regulatory reform bill that is moving through Congress.
“A review of recently acquired internal Fed emails surrounding the decision to grant Stephen Friedman, a member of the Board of Directors of Goldman Sachs and former Chairman of the Board of Directors of the Federal Reserve Bank of New York, a waiver in January 2009 that permitted him to serve on the New York Fed despite his ownership of Goldman stock reveals that senior officials had misgivings about granting the waiver but were ultimately overruled. Mr. Friedman’s purchase of Goldman stock a month after the New York Fed directed AIG to pay its counterparties, including Goldman, at par, and three months before AIG’s $13 billion payment to Goldman was officially announced to the public also raises conflict of interest questions.
“We believe a closer examination of this issue is necessary, especially when Congress is considering increasing the Fed’s powers. In the coming weeks, we will continue our investigation of this matter and will schedule a hearing to learn more from Mr. Friedman and senior Fed officials about how he was permitted to make windfall profits by trading stock in a company he had a role in regulating.”
And even as Congress, which is just as captured by the ruling banking party pretends to slap wrists left and right, Goldman continues to make tens (or hundreds, thousands, pick the word) of billions in "profits" which is nothing else than money stolen from the future of America's workers in the form of ZIRP and a diagonal yield curve. But for our own sake, this scheme is so unbelievably complex, we must all relinquish any attempts at rational thought, and let those who blew up the system make sure they manage to steal just enough before the next and final collapse occurs. Until then, we expect many more letters and many more veiled threats of TBD forceful action over the next century.