Corruption in broad daylight at the head of the Fed

Thank you, WSJ, for bringing this to our knowledge.
It's time to abolish the corrupt instituation that is the Fed!
WSJ - The ranking Republican on the Senate Banking Committee called it "deeply disturbing" that Stephen Friedman, who is chairman of the Federal Reserve Bank of New York and a director of Goldman Sachs Group Inc., bought Goldman shares in December and January.
Mr. Friedman was placed in an unusual position in September, when Goldman was allowed by the Fed to become a regulated bank-holding holding company to help halt its market slide. That put Mr. Friedman in violation of Fed rules that bar regional Fed bank board chairmen -- who are chosen to represent the public -- from owning bank shares or serving as directors or officers of banks. At the request of the New York Fed, the Fed in Washington granted him a waiver from the rule in January.

In December, before the waiver was granted, and again in January, after it was granted, Mr. Friedman bought additional Goldman shares.
Interestingly, they deny even doing anything wrong:
(Reuters) - Friedman and the New York Fed have both said that he had done nothing wrong.

The Friedman waiver was sought shortly after Goldman became a bank holding company. While the Fed was deciding whether or not to grant it, he bought 37,300 Goldman shares on December 17. On January 22, the day after the waiver was granted, he bought 15,300 more Goldman shares.
(Reuters) - A waiver granted by Federal Reserve Vice Chairman Donald Kohn that allowed the chairman of the New York Fed's board of governors to stay in his job had the full backing of the Fed's Board of governors, including Chairman Ben Bernanke, a Fed official said on Monday.
The Wall Street Journal called in an editorial on Monday for Kohn's resignation, and said he had shown a tin political ear by allowing Friedman to stay at the New York Fed.
This is just plain unbelievable... Read on (WSJ):
Stephen Friedman has appropriately resigned as chairman of the New York Federal Reserve Bank, amid a flap over his ownership of Goldman Sachs shares. But now he and others are also claiming that Mr. Friedman did nothing wrong, so it's worth clarifying the real nature of the blunder that he and Federal Reserve Vice Chairman Donald Kohn committed. [...]

Fed rules bar certain directors of the 12 regional Fed banks from owning shares in companies regulated by the Fed. Mr. Friedman owned about 46,000 Goldman shares and was a Goldman director, but that violated no rules when Goldman was a broker-dealer regulated by the Securities and Exchange Commission. But Mr. Friedman became subject to that ban when Goldman Sachs applied to become a bank holding company last autumn.
Ok, so there's an obvious conflict of interest, but we are going to make it disappear. Mr Friedman was not the reason of the crisis, so there's no conflict of interest. Oh and by the way, while the Fed is pumping money into Goldman, along with Warren Buffet and the Taxpayer, the uninterested Mr Friedman buys more shares!

New York Fed officials then applied to the Washington Fed for a conflict-of-interest waiver, and Mr. Kohn granted it in January. The Fed's logic was that the conflict wasn't created by any action of Mr. Friedman, the financial system was in crisis, and the New York Fed needed a new president if Timothy Geithner became Treasury Secretary. So Fed officials say Mr. Kohn concluded that the benefit from the continuity of keeping Mr. Friedman outweighed the conflict of interest.

Mr. Friedman also purchased 52,600 additional Goldman shares without informing the Fed. After The Wall Street Journal reported those purchases last week, Mr. Friedman resigned on Thursday, only to claim a day later at Goldman's annual meeting that this was much ado about nothing. We don't think Mr. Friedman was working the system to get rich. He's already rich, and he has always struck us as a straight arrow.

The problem is the politics of all this. Half of the financial world already thinks Goldman runs the U.S. Treasury and Fed, however unfairly. The American public is furious about the bailouts of AIG and banks, engineered by the Fed and Treasury, that have helped the likes of Goldman Sachs. And guess who Mr. Friedman's search committee picked as Mr. Geithner's successor when he left to run Treasury? Another Goldman alum, William Dudley. Yet with all of this in the political air, Mr. Friedman tried to stay in the New York Fed post at least through the end of 2009, and Mr. Kohn granted the waiver. It's hard to imagine a more politically obtuse judgment.
Mr. Kohn and Chairman Ben Bernanke have made the Fed an arm of the Treasury over the last 18 months. [...]
At least Mr. Friedman is gone, but for all the harm he has done to the Fed's political independence, Mr. Kohn should resign too.
Even HR news sites report it as an interesting case:
until he resigned his seat on May 7 following a growing number of calls for him to step down, Stephen Friedman was a New York Federal Reserve Class C director and also served as chairman of the board. He is chairman of Stone Point Capital LLC, and a member of the board of directors of Goldman Sachs, which became a bank-holding company in order to qualify for government bailout assistance.

The Federal Reserve Board of Governors granted Friedman a waiver from both the restrictions on bank-board membership and share ownership so that he could continue as a Class C director and as chairman of the New York Federal Reserve. The rational was, in part, that Goldman became a "bank-holding company" after Friedman was appointed, and a "bank-holding company" was not a "bank."

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