Conflicts Of Interest Abound At The Federal Reserve, Report Finds

When the Federal Reserve was handing out emergency loans during the financial crisis, some of the money didn't have to travel very far.

More than a dozen members of the regional Federal Reserve boards have had ties to banks or companies that received emergency funds during the crisis, according to a new report from the Government Accountability Office.

The report highlights a close relationship between the Fed's regional banks and many of the institutions they were lending to, adding credence to concerns that the financial sector enjoyed a largely consequence-free rescue in the wake of the crisis, thanks to its connections with the federal government.

Dean Baker, co-director of the Center for Economic and Policy Research and a HuffPost blogger, said that the report's findings reflected "an institutionalized conflict of interest" within the Federal Reserve.

"We don't let Comcast appoint people to the FCC. We don't let Pfizer appoint people to the Food and Drug Administration," Baker told HuffPost. The degree to which bankers can assume regulatory responsibility for their own industry, he said, is "without precedent."

All in all, the watchdog agency found 18 current or former Federal Reserve board members who had ties to institutions that benefited from the Fed's emergency lending, including directors and executives from General Electric, JPMorgan Chase and Lehman Brothers.

In one instance, the CEO of General Electric -- unnamed in the GAO report, but identified as Jeffrey Immelt by the office of Senator Bernie Sanders (D-Vt.) -- served on the board of the Federal Reserve Bank of New York at the same time that the Fed authorized an emergency loan of $16 billion to GE.

In another case, the Fed agreed in 2008 to bring Goldman Sachs under its supervisory authority, thereby making it easier for Goldman to get billions in Federal Reserve loans. At the time, Stephen Friedman -- then the chairman of the New York Fed -- sat on Goldman's board of directors and owned stock in the company.

Friedman received a waiver that allowed him to remain at the New York Fed, but the waiver was never made public, and Friedman continued to buy Goldman stock -- unbeknown to his colleagues at the Fed, according to the report -- until his resignation from the Fed several months later.

Senator Sanders, who authored an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act that led to the GAO report being issued, said in a statement that the Federal Reserve is "riddled with conflicts of interest."

The report notes that compared with other major central banks -- including those of Australia, Canada, the United Kingdom and the European Union -- the Federal Reserve does relatively little to police conflicts of interest among its personnel.

Australia's central bank, for example, "prohibits directors from working for or having a material financial interest in private financial companies in Australia" -- a restriction that the Federal Reserve lacks and that would have prevented several of the directors mentioned in the GAO report from serving holding regional board positions with the Fed.

Wednesday's findings are only the latest indication that the Fed's relationship with the financial sector during the banking crisis was much closer than the public realized at the time. Earlier this year, it was confirmed for the first time that the Fed lent a total of $1.2 trillion to more than 300 financial institutions between 2007 and 2010 in private loans separate from the bailout funds issued by the Treasury as part of TARP.

Comments

[RTIII]

04:58 PM on 11/23/2011

Nice to have the research prove what many of us already "knew," but I, for one, am not in the least surprised.

This is just more proof that we should end the Federal Reserve - it's neither Federal, nor does it manage any reserves. It's just a big scam on the people.

For a REALLY GOOD basic introduction to the Fed, I HIGHLY recommend "The Creature from Jekyll Island" by Edwin R. Griffin, if I have remembered his name correctly. It's available in video form (several different videos - all I've seen excellent) from Google Videos. Look it up!

[Bayard Waterbury]

11:10 AM on 10/21/2011

For ease of access, just click on this:

http://en.wikipedia.org/wiki/Federal_Reserve_System

[Bayard Waterbury]

11:09 AM on 10/21/2011

For those of you who may be interested, Wikipedia has a superior article on the Federal Reserve System. I would recommend that anyone could benefit by reading the article. The FED is independent of government regulation, with some exceptions based mostly on recent changes in the law. However, although we now have the right to know more about its activities, no one, including the President or Congress can directly affect any FED policy or decision. Very scary!!!!

[Bayard Waterbury]

10:49 AM on 10/21/2011

Are we really surprised? Really?!!!! If anyone was paying attention to the Obama-Geithner-Summers-Bernanke nexus as it moved down the tracks over the last couple of years, and we found out that not only did the FED substantially enhance TARP with it's own simultaneous injections into many of the same banks and firms receiving TARP, but never heard of ANY CONDITIONS WHATSOEVER, other than recoupment of TARP, being place upon any of the recipients of the largesse of the FED and the taxpayers. Nor have any banking executives been criminally prosecuted regardless of the, in many cases, obvious fraud committed in the subprime disaster. Remember that hundreds of S&L executives were prosecuted during that crisis in the 1980's, and many spent time in prison. So, finally the blush is off the rose as they say. The FED has traditionally been viewed as a erudite independent arbiter of economic activity. Never again. Maybe Ron Paul is right that the FED should be shut down. At least it is obvious that some very strict new rules need to be made to govern it's membership. The FED is one of the main reasons why income and wealth disparities have become so great in this country. It needs to become a part of the solution.

[RTIII]

05:01 PM on 11/23/2011

MANY of us want to see the Fed ended - if Ron Paul is among us, well then, he's right on at least one point. However, Ron Paul is nobody I want to see in power. . . .

[castlemike]

02:18 AM on 10/21/2011

Karl excerpts:

http://market-ticker.org/

It's July 2008. You are a "TBTF" bank CEO. You've been running a 30 year ponzi scheme using ever-increasing amounts of debt while GDP has languished in roughly the same place for the last two decades in terms of numerical growth. In the 3rd Quarter of 2007, when the S&P 500 hits 1576 and the DOW tops, the economy put about six times the amount of debt into the system as there was GDP growth, and at that point GDP had started to roll over. It had an obvious geometric progression look to it but only a few people in the blogosphere had been hollering about it.

Over the next three quarters from the 3Q 2007 GDP has actually gone negative.

You have tens of trillions of dollars in credit instruments on and off your balance sheet and things are looking pretty bad. You're getting pestered by people who see the credit contraction and start asking if you're good for those swaps, and the credit default swaps on your bank are blowing out. They have a point too: If credit demand actually goes negative, you're dead. You're geared at 30:1 which means you can only lose $3 out of every $100 of alleged "value" of your assets before you're broke. The collateral calls alone on the more than $30 trillion in swaps are enough to kill your capital several times over should this occur.

[Frenbar]

11:34 PM on 10/20/2011

"We don't let Comcast appoint people to the FCC. We don't let Pfizer appoint people to the Food and Drug Administration," Baker told HuffPost."

Unfortunately we do, and the FED is no different.

[Bayard Waterbury]

10:56 AM on 10/21/2011

Wonderful point. After all, this abuse of government agencies was one of the substantial reasons for the Gulf oil debacle, that is, the fact that many of those tasked with regulating drilling were directly linked to the industry and deliberately gave it passes on many things which should have had much closer scutiny. The same is true of the Federal regulators of banking. Many of those employed in the SEC and other major agencies in this area are taken directly from the banking industry. It's a revolving door. Just like the lobbyists, of whom about 90% formerly worked on the Hill in the very offices they are lobbying. Until we clean up the government, there is no hope for this country. So long as the plutocracy is strong and healthy, the few will continue to get richer, and the many will get poorer and die. This is just the truth, and no one can deny it. It is the biggest reason why OWS is so popular, persistant, and ubiquitous.

[Liberal2009]

04:29 PM on 10/20/2011

The only question it should spur is why does it still exist? The Fed is a private organization with government power and is not beholden to "We the people". It needs to be abolished! OWS

[Bayard Waterbury]

10:57 AM on 10/21/2011

AMEN!!!!!!!!

[nanimal]

03:22 PM on 10/20/2011

Why do they keep reporting things that are blatantly obvious? The Federal Reserve was as much complacent in the economic collapse as Wall Street. The Fed has ceased to provide any benefit to the average American and has since Greenspan.

[RTIII]

05:04 PM on 11/23/2011

Now we have proof instead of anecdotal stories...

[NilesPDX]

01:39 PM on 10/20/2011

The traitors at the Federal Reserve are doing their best to devalue the dollar and prop up the European money changers. Look how well they did today with their money printing at lunch time. They turned the whole market around by buying five billion in bonds at a profit to the likes of Goldman Sachs.

And you wonder why you are not making any money on your savings.

[nypapajoe]

01:31 PM on 10/20/2011

This is not a revelation because that's how business is conducted, underhanded, insider trading and corruption which is all as a result of Greed!

[JoanMeijer]

01:07 PM on 10/20/2011

This is a kind of DUH story. The Fed was designed to support the banks.... Until we make major changes in Congress we can't make changes to the Fed. But if OWS translates into votes - that could be interesting in terms of reforms.

[sigma316]

12:04 PM on 10/20/2011

And many people question why Ron Paul wants to eliminate the Federal Reserve?

[RTIII]

05:05 PM on 11/23/2011

whothehellcareswhat RonPaul thinks?

ALL INFORMED, THINKING CITIZENS want to end the Federal Reserve.

[Rogelio Lopez]

11:52 AM on 10/20/2011

This is a surprise WHY?????

[deepintheheartoftejas]

11:31 AM on 10/20/2011

That's actually kind of expected. The boards of the federal reserve regional banks have 9 members. 3 members, by law, are chosen from commercial bankers in the district... typically from the largest banks. Congress would need to change statute to avoid that sort of thing in the future.

[Andy49]

11:19 AM on 10/20/2011

Legalized corruption is all it is. The US has become a nation where capitolism is on steroids and it is slowly killing the goose that laid the golden egg. The rampant desire for profit for profits sake is an illness that will kill the patent. I just wish that the nation had a reset switch.

[tacevad]

12:04 PM on 10/20/2011

FDR found that switch we need to turn it back on