Investigating 'Friedmanism at the Fed'

Earlier this month, The Nationreported on
questions being raised by the House Committee on Government and
Oversight Reform regarding former New York Federal Reserve Bank Chair
Stephen Friedman's purchase of Goldman Sachs stock at a time when he was
prohibited from even owning it.

The fact that Friedman nearly doubled his Goldman holdings in
December 2008--while the public was still in the dark about which banks
were benefiting from the AIG bailout and Goldman was the greatest
domestic beneficiary to the tune of $13 billion in taxpayer money--not
only led to his resignation from the Fed, it also put the incestuous and
murky relationship between the Federal Reserve and Wall Street on full
display.

Now Committee Chairman Edolphus Towns and Congressman Stephen
Lynch have taken the investigation a step further, asking
Fed Chairman Ben Bernanke for "all documents related to Mr. Friedman's
purchase of Goldman stock" and the granting of a waiver that allowed him
to simultaneously serve on the Goldman and New York Fed boards.

"At a time when Mr. Friedman was prohibited from owning Goldman
Sachs stock, he bought over a million dollars more of it without
notifying the Federal Reserve," said Chairman Towns. "This raises
serious questions about transparency, fairness and the appearance of a
cozy relationship between Wall Street and the government."

"Normally, regulators are not allowed to personally invest in
companies that they are regulating," said Congressman Lynch. "This
arrangement at the Federal Reserve raises major conflict-of-interest
concerns. In addition, our committee will need to determine if Mr.
Friedman capitalized personally and financially, at the expense of the
taxpayer, based on information he obtained as a member of the Federal
Reserve Board of Governors."

Hopefully the Committee is also looking at what information
Friedman might have capitalized on from his role on the Goldman board
too, since an attorney for Friedman confirmed to The Nation that
Goldman board members were briefed regularly in late 2007 and early 2008
regarding how much money AIG owed Goldman.

The letter
to Bernanke also indicates that Towns and Lynch are interested in
looking beyond the case of Friedman. They have asked for copies of all
waiver requests--over the past ten years--by regional fed bank
board members in connection with ownership or purchase of stocks, and
the decisions that were made on those waivers. (There are actually a
lot of good questions laid out in the letter--you can check it out in
its entirety here.)

Kudos to Towns and Lynch for staying on top of this. In this
casino economy where the rules seem rigged so the house always wins,
their oversight offers the potential for a measure of accountability.