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NY Federal Reserve Chair resigns over Goldman Sachs link

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Yet again? Goldman Sachs has been in the news recently for all the wrong reasons. Firstly, they had former Treasury Secretary Henry Paulson under Bush who oversaw the disbursement of the (1st half of the US$700bn) TARP money as their former CEO. Goldman was one of the recipients. People are complaining they don’t know what happened to that US$350 bn.

Secondly, it was reported in mid-Apr that AIG’s CEO Edward Liddy still owns a US$3M stake in Goldman. Liddy was a former board member at Goldman’s before Paulson selected him to head AIG. Coincidence? I think not. Liddy oversaw US$13bn of bailout money sent to Goldman in March earlier this year. Why? An obvious conflict of interest. See this earlier post for a closer look at the above.

As a result of the above developments earlier, Goldman Sachs was accused of behaving more like a hedge fund than a bank.  See links here, here and here for more information.

Finally we have this.  A more comprehensive NYT article says:

Because the New York Fed approved a request by Goldman to become a bank holding company, the chairman’s involvement in Goldman was a violation of Fed policy, The Wall Street Journal reported in an article this week.

The New York Fed had asked for a waiver, which, after about two and a half months, the Fed granted, the newspaper said. During that time, Mr. Friedman bought 37,300 more Goldman shares, which have since risen $1.7 million in value.

Sorry if I took so long to get to this.  But the point I wanted to raise is, why on Earth does Goldman have so many of its key figures (either former or otherwise) in places of power?

Update: Washington Post has an article on this. Also note that the current President of the NY Fed Reserve, William Dudley worked at Goldman Sachs for 20 years, 1986 to 2007.  Goldman Sachs really does appear to have its former employees in key positions of power in America’s financial industry and its federal and state oversight branch.  Also see this Oct 17th, 2008 article in NYT on ‘Government Sachs’.

Update 2: Slate ran an op-ed by disgraced former NY governor Eliot Spitzer who resigned under pressure due to involvement in a prostitution scandal (but of course what he says must be judged on its own merits):

A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken—from raising capital to stopping lending—to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees.

Written by defennder

May 8, 2009 at 8:39 AM

Posted in Economics and business, US

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