This week on CNBC’s Kudlow Report I repeatedly called for the resignation of New York Fed chairman Steve Friedman over his blatant conflicts of interest with Goldman Sachs. I was not alone. Among others, two banking-industry heavyweights — former FDIC chairman Bill Isaac and former Cleveland Fed head Lee Hoskins — both agreed with my resignation call on Wednesday night’s show. So I was delighted to learn last night, just before going on-air, that Friedman had resigned his position at the New York Fed effective immediately.
I’ve known Mr. Friedman for many years. He is a good man. But he demonstrated extremely poor judgment and made a bad ethical mistake. According to the Wall Street Journal, during his tenure at the New York Fed, Friedman was also a director on Goldman’s board and had a large holding in Goldman stock. Of course, this was a violation of Fed policy due to Goldman’s status (as of September 2008) as a bank holding company. The New York Fed asked for a waiver, which the Fed, for some unknown reason, granted. To make matters worse, while weighing this request, Friedman purchased an additional 37,000 Goldman shares which have since risen almost $2 million in value.
It’s clear that Friedman crossed the line. A very bright line. No director of any regional Fed bank should have any connections with regulated financial institutions like Friedman had with Goldman Sachs. That’s a huge conflict of interest.
So my hat goes off to Steve Friedman for stepping down. Good for him. The American capitalist system must never be rigged for the benefit of a bunch of insiders. There must be a firm zero-tolerance policy against such self-dealing shenanigans. It poisons the system and sends entirely the wrong message to Main Street about Wall Street’s relationship with its regulators.
I would like to tip my hat to the Wall Street Journal’s Jon Hilsenrath and Kate Kelly. They deserve a big gold star for shining the light on this important story. They did what good journalists do; they served as disinfectants to the system. Both ought to be commended.
A parting thought: This whole Friedman episode looks like yet another unfortunate example in a long line of growing TARP corruption. Make no mistake: TARP is a corrosive, corrupting, and demoralizing influence on our banks and the rest of the economy. It is a symptom of the slippery slope we are sliding into with Team Obama’s big-government, bailout-nation vision and agenda. The Friedman mess is merely symptomatic of this growing problem inside our system.
It is time we all opened our eyes to the mess before us. Enough already. We can do much better.