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.