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Robert Scheer: Cashing In On ‘Government Sachs’
We are so inured to tales of business corruption that even a devastating expose in The Wall Street Journal no longer shocks us. The fact that the chairman of the New York Federal Reserve Bank made millions off his secret purchase of Goldman Sachs stock, “in violation of Federal Reserve policy,” as the Journal put it, at a time when the N.Y. Fed was ostensibly overseeing the antics of the Wall Street firm, has barely registered a blip of outrage.
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 multimillion-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 Monday.
Friedman was in violation of the Fed’s policy because, thanks in part to the urging of Geithner and the N.Y. Fed, Goldman Sachs was allowed to become a bank holding company, making it eligible for government bailout funds (an option that Geithner had denied to Goldman rival Lehman Brothers). But that shift also put Goldman under more rigorous banking regulations that required Friedman as Class C director of the N.Y. Fed, a position in which he ostensibly represents the public instead of the banks who dominate the board, to step down as a Goldman director and divest his holdings.
Instead, he stayed on the Goldman board and added additional shares while waiting for the Fed waiver. Nor did he inform the Federal Reserve of his additional purchases last December, and the lawyers for the N.Y. Fed didn’t know about that purchase until the Journal raised questions in April. Friedman has made a profit of about $3 million on the additional shares.
The significance of this conflict of interest was summarized by the lead of the Journal story: “The Federal Reserve Bank of New York shaped Washington’s response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.”
In addition to that capital injection, which at least carries some expectation of being repaid, Goldman received an additional $8.1 billion that will not have to be returned to taxpayers. This is a result of the bailout engineered by then-N.Y. Fed President Geithner of AIG, which listed Goldman as its top insured credit-swap customer. 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.
All of which calls into question the unique power of Goldman Sachs over the U.S. government, as described in another important, but largely ignored, article from The New York Times last October headlined, “The Guys From ‘Government Sachs.’” Their power is vast, no matter which party controls the White House. As the Times noted, two leaders of Goldman Sachs — Robert Rubin, who co-chaired Goldman with Friedman, and Henry Paulson — had become secretaries of the treasury in the Bill Clinton and George W. Bush administrations, respectively.
Under Paulson, the bailout of Wall Street was dominated by Goldman Sachs alums, and as the Times noted, “Indeed, Goldman’s presence in the (Treasury) department and around the federal response to the financial bailout is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.”
That power continues unabated in the Obama administration. 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?
— TruthDig.com editor in chief Robert Scheer‘s new book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America. Click here for more information. He can be reached at .(JavaScript must be enabled to view this email address).
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» on 05.09.09 @ 10:34 AM
Mr. Scheer is right. But what’s the surprise?
As with the corrupt Gilded Age 130 years ago, leaders of both parties are so totally compromised by their avarice, and their constant (drug addict like) need for ever larger sums of campaign money, that they readily turn a blind eye to behavior that used to be illegal, and many still find nauseating.
NY Fed Chair Friedman has resigned. It was the same day Hillary’s money bundler, Mr. Hsu, pleaded guilty to fraud.
Meanwhile Obama’s Illinois sugar-daddy, Mr. Reszko, is still trying to plea-bargain his graft way, while their former governor pal is about to go on trial himself.
The fixers on the Republican side have moved heaven and earth from having Tom
“the Hammer” DeLay come to trial. And Rahm Emmanual is reputed to be just as
impatient, ruthless, and tireless at fund-raising.
Saturday’s WSJ reports on how troubled mega-banks, flush with public bail-out TARP money, negotiated and jawboned Tim Geithner’s people to get better grades
for their publicly released “stress tests” than the original raw data indicated. Why
is no one surprised?
Isn’t it interesting that Obama didn’t hesitate to sack GM’s former CEO for much
smaller losses, yet he and the AG’s office seem loath to go after any of the greedy
NY financial brigands who brazenly pushed the world economy to the edge of
collapse?
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» on 05.18.09 @ 11:28 AM
MORE PROOF on this subject that the GOP “is firmly in denial”—Hillsdale College is doing its annual elder hostel this Summer in Michigan. Among the economics lectures are those of Prof. Burt Folsom - using the following two texts—which I purchased in lieu of attending: (1) “The Myth of the Robber Marons: A New Look at the Rise of Big Business in America” [Fifth edition]; and(2) New Deal or Raw Deal: How FDRs Economic Legacy Has Damaged America” [c. 2008]. NOTHING about EISENHOWER PRESIDENTIAL AGRICULTURE SECRETARY EZRA TAFT BENSON’S “temporary fix” during a prior 1950s economic downturn with ag subsidies, since verifying the proof of axiom: Nothing more permanent than a government program.
Imagine this seeming dual impossibility: If the Obama Administration could (a) end ag subsidies returning US ag to market constraints and influences; while also(!) doing another seeming impossibility (b) ending subsidies to the American Indian Nations - phased down then out with their hands-on cooperation! SIGNIFICANT BALANCING of the FEDERAL BUDGET COULD BE ADVANCED, and the recent co-opting of a potential rival on the presidential circuit—UT Gov. Jon Huntsman as ambassador to China—would be astounding. [Lurking in the background: WHAT IF Hunstman is confirmed by the Senate, but the Chinese government refuses to accept his credentials]? ZOUNDS!
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