May 17, 2009
The recent article about Treasury Secretary “Turbo” Tim Geithner by Jo Becker and Gretchen Morgenson, appearing in the April 26 edition of The New York Times, seems to have helped fan the flames of the current outrage concerning the Federal Reserve Bank of New York. Turbo Tim was president of the New York Fed during the five years prior to his appointment as Treasury Secretary. Becker and Morgenson pointed out many of the ways in which “conflict of interest” seems to be one of the cornerstones of that institution:
The New York Fed is, by custom and design, clubby and opaque. It is charged with curbing banks’ risky impulses, yet its president is selected by and reports to a board dominated by the chief executives of some of those same banks. Traditionally, the New York Fed president’s intelligence-gathering role has involved routine consultation with financiers, though Mr. Geithner’s recent predecessors generally did not meet with them unless senior aides were also present, according to the bank’s former general counsel.
By those standards, Mr. Geithner’s reliance on bankers, hedge fund managers and others to assess the market’s health — and provide guidance once it faltered — stood out.
The New York Fed is probably the most important of the nation’s twelve Federal Reserve Banks, since its jurisdiction includes the heart of America’s financial industry. As the Times piece pointed out, this resulted in the same type of “revolving door” opportunities as those enjoyed by members of Congress who became lobbyists and vice versa:
A revolving door has long connected Wall Street and the New York Fed. Mr. Geithner’s predecessors, E. Gerald Corrigan and William J. McDonough, wound up as investment-bank executives. The current president,William C. Dudley, came from Goldman Sachs.
The New York Fed’s current chairman, Stephen Friedman, has become a subject of controversy these days, because of his position as director and shareholder of Goldman Sachs. Goldman sought and received expedited approval to become a “bank holding company” last September, thus coming under the jurisdiction of the Federal Reserve and becoming eligible for the ten billion dollars in TARP bailout money it eventually received. After Goldman became subject to the New York Fed’s oversight (with Friedman as the New York Fed chairman) the Fed made decisions that impacted Goldman’s financial state. Although this controversy was discussed here and here by The Wall Street Journal, that publication’s new owner, Rupert Murdoch, now requires a $104 annual on-line subscription fee to read his publication over the Internet. Sorry Rupert: Homey don’t play that. Although Slate provided us with an interesting essay on the Friedman controversy by Eliot “Socks” Spitzer, the best read was the commentary by Robert Scheer, editor of Truthdig. Here are some important points from Scheer’s article, “Cashing In on ‘Government Sachs’ “:
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 Tuesday.
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As Jerry Jordan, former president of the Fed Bank in Cleveland, told the Journal in reference to Friedman’s obvious conflict of interest, “He should have resigned.”
Unfortunately, this was not the view during the reign of Geithner, who argued that Friedman needed to remain chairman of the N.Y. Fed board to find a suitable replacement for Geithner as he moved on to be secretary of the Treasury. Friedman chose a fellow former Goldman Sachs exec for the job.
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Geithner is a protege of former Goldman Sachs chairman Rubin. And it was therefore not surprising when he picked Mark Patterson, a registered lobbyist for Goldman Sachs, to be his chief of staff at the Treasury Department. That appointment was made on the same day that Geithner announced new rules for limiting the influence of registered lobbyists. Need more be said?
Yes, there are a couple more things: Goldman Sachs was the second largest contributor to Barack Obama’s Presidential election campaign, with a total of $980,945 according to OpenSecrets.org. President Obama nominated Gary Gensler of Goldman Sachs to become Chairman of the Commodity Futures Trading Commission. As Ken Silverstein reported for Harpers, this nomination has stalled, since a “hold” was placed on the nomination by Vermont Senator Bernie Sanders. Mr. Silverstein quoted from the statement released by the office of Senator Sanders concerning the rationale for the hold:
Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S.history. He supported Gramm-Leach-Bliley, which allowed banks like Citigroup to become “too big to fail.” He worked to deregulate electronic energy trading, which led to the downfall of Enron and the spike in energy prices. At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace and move us away from the greed, recklessness and illegal behavior which has caused so much harm to our economy.
“Change you can believe in”, huh?
Offering Solutions
October 22, 2009
Many of us are familiar with the old maxim asserting that “if you’re not part of the solution, you’re part of the problem.” During the past year we’ve been exposed to plenty of hand-wringing by info-tainers from various mainstream media outlets decrying the financial crisis and our current economic predicament. Very few of these people ever seem to offer any significant insight on such interesting topics as: what really caused the meltdown, how to prevent it from happening again, whether any laws were broken that caused this catastrophe, whether any prosecutions might be warranted or how to solve our nation’s continuing economic ills, which seem to be immune to all the attempted cures. The painful thorn in the side of Goldman Sachs, Matt Taibbi, recently raised an important question, reminding people to again scrutinize the vapid media coverage of this pressing crisis:
That quote inspired Yves Smith of Naked Capitalism to write a superb essay about how “access journalism” has created a controlled press. What follows is just a small nugget of the great analysis in that piece:
Fortunately, one television news reporter has broken the silence concerning the impact on America’s middle class, caused by Wall Street’s massive Ponzi scam and our government’s response – which he calls “corporate communism”. I’m talking about MSNBC’s Dylan Ratigan. On Wednesday’s edition of his program, Morning Meeting, he decried the fact that the taxpayers have been forced to subsidize the “parlor game” played by Goldman Sachs and other firms involved in proprietary trading on our coin. Mr. Ratigan then proceeded to offer a number of solutions available to ordinary people, who would like to fight back against those pampered institutions considered “too big to fail”. Some of these measures involve: moving accounts from one of those enshrined banks to a local bank or credit union; paying with cash whenever possible and contacting your lawmakers to insist upon financial reform.
My favorite lawmaker in the battle for financial reform is Congressman Alan Grayson, whose district happens to include Disney World. His fantastic interrogation of Federal Reserve general counsel, Scott Alvarez, about whether the Fed tries to manipulate the stock markets, was a great event. Grayson has now co-sponsored a “Financial Autopsy” amendment to the proposed Consumer Financial Protection Agency bill. This amendment is intended to accomplish the following:
From his website, The Market Ticker, Karl Denninger offered his own contributions to this amendment:
It’s nice to know that bloggers are no longer the only voices insisting on financial reform. Ed Wallace of Business Week recently warned against the consequences of unchecked speculation on oil futures:
Did you think that the “Enron Loophole” was closed by the enactment of the 2008 Farm Bill? It wasn’t. The Farm Bill simply gave more authority to the Commodity Futures Trading Commission to regulate futures contracts that had been exempted by the loophole. In case you’re wondering about the person placed in charge of the Commodity Futures Trading Commission by President Obama — his name is Gary Gensler and he used to work for … You guessed it: Goldman Sachs.