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View Diary: BREAKING: Chair of New York Fed Resigns (109 comments)

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  •  Great piece linked from yesterday's HuffPo... (28+ / 0-)

    Explains why GS s/b Broken Up And Fined Billions Immediately!

    Here's why...

    in on 'Government Sachs'

    Cashing In On 'Government Sachs'
    Robert Scheer

    Veteran Journalist and Editor of
    Posted May 6, 2009 | 10:30 AM (EST)

    We are so inureEd to tales of business corruption that even a devastating exposé in The Wall Street Journal no longer shocks us. The fact that the chairman of the New York Federal Reserve Bank made millions off his secret purchase of Goldman Sachs stock, "in violation of Federal Reserve policy," as the WSJ put it, at a time when the N.Y. Fed was ostensibly overseeing the antics of the Wall Street firm, has barely registered a blip of outrage.

    When N.Y. Fed Chairman Stephen Friedman bought stock in the company that he once headed, and where he still serves as a director, he was already in violation of Federal Reserve policy and was hoping for a waiver to permit him to hold his existing multi-million-dollar stock stash and to remain on the Goldman board. The waiver was requested last October by Timothy Geithner, then the president of the N.Y. Fed and now Treasury secretary. Yet, without having received that waiver, Friedman went ahead in December and purchased 37,300 additional shares. With shares he added in January, after the waiver was granted, he ended up with 98,600 shares in Goldman Sachs, worth a total of $13,330,720 at the close of trading on Monday.

    Friedman was in violation of the Fed's policy because, thanks in part to the urging of Geithner and the N.Y. Fed, Goldman Sachs was allowed to become a bank holding company, making it eligible for government bailout funds (an option that Geithner had denied to Goldman rival Lehman Brothers). But that shift also put Goldman under more rigorous banking regulations that required Friedman as Class C director of the N.Y. Fed, a position in which he ostensibly represents the public instead of the banks who dominate the board, to step down as a Goldman director and divest his holdings. Instead, he stayed on the Goldman board and added additional shares while waiting for the Fed waiver. Nor did he inform the Federal Reserve of his additional purchases last December, and the lawyers for the N.Y. Fed didn't know about that purchase until the WSJ raised questions in April. Friedman has made a profit of about $3 million on the additional shares.

    The significance of this conflict of interest was summarized by the lead of the WSJ story: "The Federal Reserve Bank of New York shaped Washington's response to the financial crisis..."

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Thu May 07, 2009 at 04:25:47 PM PDT

    [ Parent ]

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