The "Wall Street Journal" reports in today's edition that the Federal Reserve Bank of New York's Chairman, Stephen Friedman, resigned amid a controversy about his dual roles as a director of the Fed bank and a director and shareholder of Goldman Sachs Group. Why is this important? Because the Federal Reserve Bank of New York is a policy-making body, and the Federal Reserve System is a primary banking system regulator. Once Goldman converted to a bank holding company, it fell under the Fed jurisdiction. Oh, that would be under the purview of Stephen Friedman.
According to Karl Kenninger over at the "Market Ticker," during that time, Mr. Friedman sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy. The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. (No kidding) While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December of 2008. These shares have since risen $1.7 million in value. I believe what Mr. Friedman did was highly illegal, because it amounts to insider trading. Let's see if the SEC is going to prosecute him for insider trading. Don't hold your breath.
I just wonder how many top Fed and Treasury officials have a direct tie to Goldman Sachs, or, for that matter, to Wall Street?
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