Saturday, September 10, 2011

Corruption in Government

There is an excellent article by Yves Smith in her Naked Capitalism blog. Here is the juiciest tidbit to whet your appetite:
What is disturbing about the Wall Street Journal is the moral blindness of too many of the key actors, namely Friedman himself and some Fed officials. Let’s parse some of the key bits of the Wall Street Journal story:
The Federal Reserve Bank of New York shaped Washington’s response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.
... he latest news tidbit, of former Goldman co-chairman Steven Friedman staying on as chairman of the New York Fed after Goldman became a bank holding company, isn’t as troubling as when current Goldman chief Lloyd Blankfein was the only Wall Street denizen to meet with Hank Paulson when the Treasury was deciding what to do about AIG. Readers may recall that Goldman had the biggest exposure to AIG and thus had the most to benefit from a course of action that would be generous to counterparties (who had chosen of their own cognizance to enter into contracts with the big insurer).

During that time, the New York Fed’s chairman, Stephen 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. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They’ve since risen $1.7 million in value.
Get that? The guy in charge of "saving Wall Street", the head of the NY Federal Reserve, gets to decide to save Goldman Sachs (and thereby save the value of his shares in that company), and once he sets them up as a bank holding company and gives them an infusion of $10 billion of taxpayer money, he decides they look like "a good investment" so he buys more shares... of the very bank he is supposed to "regulate".

That's letting the fox look after the hens in the hen house because he is best situated to know which is the tenderest, plumpest, and more desirable. Willie Sutton would have given up his career as a bank robber if he could have gotten himself named as a bank director!

Go read the whole article.

Thank God America has Obama on the job to bless this bit of self-serving double-dealing. We wouldn't want America to descend into "crony capitalism" like Asia in 1997 when the US and the IMF all chided Asian countries over their "corruption".

Sadly, I expected crony capitalism from George Bush and the Republicans. I'm surprised by Obama's eager embrace of Wall Street and all that lobbyist money to fund his 2012 re-election. Thank God Obama is incorruptible and has shown himself to jump in and nip corruption in the bud by turning a blind eye to these Federal Reserve shenanigans, by watering down the Dodd-Frank bill, and showing great reluctance to attend the $100,000 a plate celebratory dinners that Wall Street has thrown in celebration of finally have a tough "regulator" in the White House.

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