October 21st, 2011
Econintersect: Sen. Bernie Sanders (I, VT) - pictured - has published an indictment of what he calls “enormous conflicts of interest” that exists at the Federal Reserve. This has prompted the senator to form a blue ribbon committee to advise on legislation to reform the Federal Reserve. Sanders uses as his Exhibit A the GAO (General Accounting Office) report released this week that reviews governance issues at the Fed.
Sanders lists 18 former and current members of the Federal Reserve’s board affiliated with banks and companies that received emergency loans from the Fed during the financial crisis. He also summarized findings by the GAO that compares the Fed very unfavorably to other central banks. Follow up:
Follow up:Sanders singled out Stephen Friedman, Jeffrey Immelt and Jamie Dimon in his indictment. Here is what he wrote:
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.
In criticizing the lack of diversity on Federal Reserve boards, Sanders stated that 82 of the 108 board directors were president or CEO of their company. He also singled out a statement in the Fed reply to the GAO report for ridicule:
The Federal Reserve claims that it is hard to recruit labor and consumer representatives to its board because many are "politically active," and the Federal Reserve has restrictions on a director's "political activity." Sanders called this "laughable," compared to the political action of CEOs of large financial institutions serving on the Fed's board. For example, Jamie Dimon, the CEO of JP Morgan Chase currently serves on the board of directors at the Federal Reserve Bank of New York. According to the Center for Responsive Politics, Dimon has made over $620,000 in campaign contributions since 1990.
The full indictment can be read here. A report on the GAO is available at GEI News, as is a report on the advisory committee that Sanders has assembled to advise on legislation to reform the Fed.