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?
A Consensus On Conspiracy
May 21, 2009
I guess I can throw away my tinfoil hat. I’m not so paranoid, after all.
Back on December 18, after discussing the bank bailout boondoggle, I made this observation about what had been taking place in the equities markets during that time:
Some people agreed with me, although others considered such a “conspiracy” too far-flung to be workable.
Thanks to Tyler Durden at Zero Hedge, my earlier suspicions of market manipulation were confirmed. On Tuesday, May 19, Mr. Durden posted a video clip from an interview with (among others) Dan Schaeffer, president of Schaeffer Asset Management, previously broadcast on the Fox Business Channel on May 14. While discussing the latest “bear market rally”, Dan Schaeffer made this observation:
Mr. Schaeffer was then interrupted by panel member, Richard Suttmeier of ValuEngine.com.
My fellow foilhats likely had no trouble recognizing this market manipulation as the handiwork of the Plunge Protection Team (also known as the PPT). Many commentators have considered the PPT as nothing more than a myth, with some believing that this “myth” stems from the actual existence of something called The President’s Working Group on Financial Markets. For a good read on the history of the PPT, I recommend the article by Ambrose Evans-Pritchard of the Telegraph. Bear in mind that Evans-Pritchard’s article was written in October of 2006, two years before the global economic meltdown:
John Crudele of the New York Post frequently discusses the PPT, although he is presently of the opinion that it either no longer exists or has gone underground. He has recently considered the possibility that the PPT may have “outsourced” its mission to Goldman Sachs:
Could Goldman Sachs be involved in a conspiracy to manipulate the stock markets? Paul Farrell of MarketWatch has been writing about the “Goldman Conspiracy” for over a month. You can read about it here and here. In his May 4 article, he set out the plot line for a suggested, thirteen-episode television series called: The Goldman Conspiracy. I am particularly looking forward to the fourth episode in the proposed series:
It’s nice to know that other commentators share my suspicions … and better yet: Some day I could be watching a television series, based on what I once considered my own, sensational conjecture.