Middle East Focus-Arabia Deserta: Fox in the Henhouse: Friedman of NY Fed, Friedman of Goldman Sachs, Friedman of AIG?………

Arabia Deserta

Fox in the Henhouse: Friedman of NY Fed, Friedman of Goldman Sachs, Friedman of AIG?………

“That distinction belongs to Stephen Friedman the former chairman of the board of the New York Federal Reserve Bank and a member of the board of directors of Goldman Sachs. Through those two posts, Friedman may have had access to privileged information about the extent of Goldman's exposure to AIG and the opportunity to profit from the Fed's bailout of the beleaguered insurance giant. While he was serving on both boards, Friedman purchased 52,600 shares of Goldman stock, more than doubling the number of shares he owned. These purchases have since risen millions of dollars in value--and raised allegations of insider trading. Friedman's purchases were exposed by the Wall Street Journal in early May 2009, and within days he resigned as chair of the New York Fed. His resignation letter claimed that although he had acted "in compliance with the rules," the suggestion of impropriety had become a "distraction" from the important work of the Federal Reserve. In a press release, New York Fed executive vice president and general counsel Thomas Baxter also said that Friedman's acquisition of Goldman shares "did not violate any Federal Reserve statute, rule or policy."…. In late January, House Oversight Committee chair Edolphus Towns called in Geithner, former Treasury Secretary Henry Paulson, Baxter and Friedman to testify about the AIG bailout. Friedman's Goldman deal was a significant line of inquiry………….”

In central banking we used to talk about moral hazard on the institutional level, but not seriously. This case looks like one of no morality and serious and continuing hazard.
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