Top executives from Goldman Sachs, J.P. Morgan Chase, General Electric and other firms sat on the boards of regional Federal Reserve banks while their firms benefited from the central bank’s policies during the financial crisis, creating an appearance of a conflict of interest, a federal watchdog said Wednesday.
This created an appearance of conflict? That’s like saying Godzilla has the appearance of conflict with urban planning in Tokyo. You can thank Senator Bernie Sanders and Congressman Ron Paul for the recent audit of the Federal Reserve. Bear in mind that this wasn’t even a complete audit as Mr. Sanders did cave to pressure to limit the scope of the audit to TARP and TALF, excluding monetary policy decisions or dealings with foreign central banks. I think even a limited audit is worth $20 for Bernie. And while I strongly disagree with Mr. Paul’s policy positions, I wouldn’t fault you for pitching in for him either.
Sanders said the report proved the Fed system is “riddled with conflicts of interest.”
“Clearly it is unacceptable for so few people to wield so much unchecked power,” Sanders said. “Not only do they run the banks, they run the institutions that regulate the banks.”Sanders added that he is consulting with economists to draft a bill that would restructure the Fed and prevent the banking industry from selecting its directors.
While I would count this as government corruption by corporate influence, it is worth pointing out that the Federal Reserve is not a government agency; it is privately owned. This is one place I think Progressives and Libertarians can agree- the Federal Reserve as it exists today is not beneficial. What we replace it with, now that’s a bigger discussion …
The report by the non-partisan research arm of Congress did not name but unambiguously described several individual cases involving Fed directors that created the appearance of a conflict of interest, including:
- Stephen Friedman In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap Fed loans. During the same period, Friedman, chairman of the New York Fed, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed’s rules prohibited. He received a waiver in late 2008 that was not made public. After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed, according to the GAO.
- Jeffrey Immelt The Federal Reserve Bank of New York consulted with General Electric on the creation of the Commercial Paper Funding Facility. The Fed later provided $16 billion in financing for GE under the emergency lending program while Immelt, GE’s CEO, served as a director on the board of the Federal Reserve Bank of New York.
- Jamie Dimon The CEO of JP Morgan Chase served on the board of the Federal Reserve Bank of New York at the same time that his bank received emergency loans from the Fed and was used by the Fed as a clearing bank for the Fed’s emergency lending programs. In 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns.At the time, Dimon persuaded the Fed to provide JP Morgan Chase with an 18-month exemption from risk-based leverage and capital requirements. He also convinced the Fed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired this troubled investment bank.
Hey, isn’t Jeffrey Immelt Obama’s Chief Jobs Wrangler? Thanks Obama, you sure cleaned up Washington!
Read More:
The Sanders Report on the GAO Audit on Major Conflicts of Interest at the Federal Reserve
Non-Partisan Government Report: Federal Reserve Is Riddled with Corruption and Conflicts of Interest
Tags: bailouts, curruption, federal reserve
