Last month, the office of US Senator Bernie Sanders (I-Vt.) released a report [warning: PDF] on the GAO Audit on “major conflicts of interest at the Federal Reserve.” I didn’t see this until just recently, but the summary is quite interesting:
- The affiliations of the Federal Reserve’s board of directors with financial firms continue to pose “reputational risks” to the Federal Reserve System.
- The policy of the Federal Reserve to give members of the banking industry the power to both elect and serve on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest.”
- The GAO identified 18 former and current members of the Federal Reserve’s board affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis including General Electric, JP Morgan Chase, and Lehman Brothers.
- There are no restrictions on directors of the Federal Reserve Board from communicating concerns about their respective banks to the staff of the Federal Reserve.
- Many of the Federal Reserve’s board of directors own stock or work directly for banks that are supervised and regulated by the Federal Reserve. These board members oversee the Federal Reserve’s operations including salary and personnel decisions.
- Under current regulations, Fed directors who are employed by the banking industry or own stock in financial institutions can participate in decisions involving how much interest to charge to financial institutions receiving Fed loans; and the approval or disapproval of Federal Reserve credit to healthy banks and banks in “hazardous” condition.
- The Federal Reserve does not publicly disclose its conflict of interest regulations or when it grants waivers to its conflict of interest regulations.
- 21 members of the Federal Reserve’s board of directors were involved in making personnel decisions in the division of supervision and regulation at the Fed.
Very interesting indeed. In addition, three names popped up: Stephen Friedman, Jeffrey Immelt, and Jamie Dimon. I’ll forgive you if you’re not familiar with Mr. Friedman, but everyone should know Immelt and Dimon; they’re the CEO of General Electric and JP Morgan Stanley, respectively. All three have sat on the board of directors at either the New York Fed, which was at the very center of the financial crisis. As per the report:
Stephen Friedman, the former chairman of the New York Fed’s board of directors
During the end of 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap loans from the Federal Reserve. During this time period, Stephen Friedman, the Chairman of the New York Fed, sat on the Board of Directors of Goldman Sachs, and owned shares in Goldman’s stock, something that was prohibited by the Federal Reserve’s conflict of interest regulations. Mr. Friedman received a waiver from the Fed’s conflict of interest rules in late 2008. This waiver was not publically disclosed. After Mr. Friedman received this waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009. According to the GAO, the Federal Reserve did not know that Mr. Friedman continued to purchases Goldman’s stock after his waiver was granted.
Jeffrey Immelt, the CEO of General Electric, and board director at the New York Fed
The GAO found that the Federal Reserve Bank of New York consulted with General Electric on the creation of the Commercial Paper Funding Facility established during the financial crisis.The Fed later provided $16 billion in financing to General Electric under this emergency lending program. This occurred while Jeffrey Immelt, the CEO of General Electric, served as a director on the board of the Federal Reserve Bank of New York.
Jamie Dimon, the CEO of JP Morgan Chase and board director at the New York Federal Reserve
Jamie Dimon, the CEO of JP Morgan Chase, served on the board of the Federal Reserve Bank of New York at the same time that his bank received emergency loans from the Fed and while his bank was used by the Fed as a clearinghouse for the Fed’s emergency lending programs.
In March of 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns. During this time period, Jamie Dimon was successful in getting the Fed to provide JP Morgan Chase with an 18-month exemption from risk-based leverage and capital requirements. Dimon also convinced the Fed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired this troubled investment bank.
If Occupy Wall Street wants evidence that our government is buying bought and sold by major corporations, it should look no further than here. We have the heads of commercial banks sitting directly on the board of directors of the government bank loaning them money and directly managing our monetary system. That’s a textbook example of corporatism, and if your favorite leftist uses this term, “corporatocracy” as well. (I may have gotten the spelling wrong; you should probably consult ThinkProgress’ Dictionary for Progressives, 4th Edition Revised (For the Children) if you want to use it in an essay.)
Maybe I missed it—and it’s possible, I don’t have a TV right now—but this should have received more outrage. Will Occupy Wall Street turn to Occupy The FED? It should. This is where the rot in our economy is centered, and this is where we’ll have to pull it out.