NY Fed And Goldman Sachs Crony CEO Retires
Former Goldman CEO Stephen Friedman retired this week.
That's Paulson on the left (Dartmouth) and Friedman on the right.
As Nomi Prins relates, sometime in the 1970's, while on an executive retreat, Paulson made the mistake of challenging the much smaller Friedman to a wrestling match. According to the story, Friedman made short work of Paulson and had him pinned to the ground in no time. And then pinned him several more times before the Hammer gave up.
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Stephen Friedman Retires - Biggest Wall St. Crook You've Never Heard Of
Goldman Sachs said on Thursday that Stephen Friedman, who once headed the bank when it was a private partnership, will retire from its board of directors because he has reached the company's age limit.
Friedman, who is 75, has been a director since April 2005 and is also chairman of Stone Point Capital, a private-equity firm, according to Goldman's website.
He was senior partner and chairman of the management committee until 1994, when he retired from management. Before Goldman went public in 1999, the senior partner title was equivalent to chief executive.
"Steve has made invaluable contributions to Goldman Sachs over the last five decades," Chief Executive Lloyd Blankfein said in a statement. "He's been an outstanding director whose counsel and judgment we've depended on greatly. We thank him for his exemplary service."
Friedman, who started his career as an investment banker, shared the senior partner position with Robert Rubin from 1990 until 1992, when Rubin left to work for the Clinton administration. He eventually became Treasury Secretary in 1995.
As sole head of the firm, Friedman came under such stress that he was admitted to a hospital with extreme heart palpitations, according to the book "The Partnership: The Making of Goldman Sachs."
At a partner meeting in September 1994, Friedman surprised other senior bankers with an announcement that he would be retiring as head of the firm, without a clear succession plan in place. He eventually chose Jon Corzine and Henry Paulson to succeed him in a dual role as senior partners later that year.
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DB here. The main reason we're posting this story is to to highlight the criminal behavior of Friedman a few years ago during the AIG bailout, when he was serving on the board of Goldman and the New York Fed, which gave him access to inside information -- specifically that Geithner had ordered AIG to pay Goldman 100 cents on the dollar -- which he then used to buy 52,000 shares of GS stock in violation of NY Fed rules, and for which he was never investigated or punished.
At the time of his GS stock purchase, it was not public knowledge that AIG would be paying par to Goldman for CDS contracts, and he used that information to make millions.
I discussed the allegations with Larry Doyle:
Listen to the final 60 seconds.
Why did the Federal Reserve Bank of New York (FRBNY), whose Chairman was Stephen Friedman (a Goldman Sachs board member who resigned from the New York Fed earlier this year when it was revealed that he had made $5 million by purchasing shares in GS with the knowledge that AIG would be paying counterparties at par and that Goldman would be getting a $13 billion windfall -- when no one else had this information) and whose President was none other than current Treasury Secretary Tim Geithner, why did this New York Fed choose to pay AIG's counterparties 100 cents on the dollar when AIG itself had been negotiating for steep haircuts with claimants, AND why did they then pressure AIG executives to keep quiet about the decision even discouraging AIG from disclosing the 'par-payments' to its shareholders in required SEC filings?
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Bernie Sanders on Goldman, AIG and Friedman starting at 1:10.
The report by the non-partisan research arm of Congress did not name but unambiguously described several individual cases involving Fed directors that created the appearance of a conflict of interest, including:
- Stephen Friedman - In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap Fed loans. During the same period, Friedman, chairman of the New York Fed, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed's rules prohibited. He received a waiver in late 2008 that was not made public. After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed, according to the GAO.
- Jeffrey Immelt - The Federal Reserve Bank of New York consulted with General Electric on the creation of the Commercial Paper Funding Facility. The Fed later provided $16 billion in financing for GE under the emergency lending program while Immelt, GE's CEO, served as a director on the board of the Federal Reserve Bank of New York.
- 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 totalling $390 billion, and was used by the Fed as a clearing bank for the Fed's emergency lending programs. In 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns. At the time, Dimon persuaded the Fed to provide JP Morgan Chase with an 18-month exemption from risk-based leverage and capital requirements. He 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 another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds. One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.
- To Sanders, the conclusion is simple. "No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed's board of directors or be employed by the Fed," he said.
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Background:
Update:
Friedman and Barofsky testify on AIG bailout.
Friedman starts at the 29-minute mark.
NYT and WSJ sources for this story:
Revisiting a Fed Waltz With A.I.G.
Fed Advice to A.I.G. Scrutinized
Chairman of N.Y. Fed Quits Amid Questions
Friedman's Ties to Goldman Raise Questions (WSJ article that forced him to resign)
Apr 9, 2013 at 7:37 PM
Reader Comments (8)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7T5HaOgYHpE
This is a must read.
http://dailybail.com/home/janet-tavakoli-wonders-did-friedman-paulson-geithner-conspir.html
What Janet discusses, though less well-known, is equally true -- that Goldman Sachs created the AIG liquidity crisis by demanding billion-dollar collateral bumps in the days before AIG's bailout, but long before, by securitizing toxic MBS CDOs and offloading to them to Wall Street and European banks. Then OVER-HEDGING it's own exposure to to MBS CDOs all with AIG, to the extent that their hedges effectively KILLED AIG and forced a government takeover, resulting in (you guessed it) a bailout of AIG's counterparties at 100 cents on the dollar, instead of the 10-15 cents that Janet demonstrates would have been the likely alternative.
http://dailybail.com/home/audit-the-fed-victory-at-press-conference-sanders-blasts-ber.html
http://dailybail.com/home/how-the-ny-fed-under-stephen-friedman-tim-geithner-pressured.html
http://dailybail.com/home/gao-report-federal-reserve-is-riddled-with-corruption-and-co.html
http://dailybail.com/home/a-25-billion-dollar-secret-the-ny-fed-goldman-the-aig-cover.html
http://www.thenation.com/article/friedmanism-fed#
http://www.bloomberg.com/news/2010-06-30/scrutiny-of-goldman-sachs-board-focusing-on-silence-over-client-conflicts.html