Sunday, October 23, 2011
Bailed Out Banks Give Advice?
In this article, author Jim Mctague talks about the 2008 financial crisis, and how the Federal Reserve Bank of New York took advice from banks who were themselves being bailed out by the government TARP (Troubled Assets Relief Program). Some of the banks the New York Fed had asked advice from included Goldman Sachs, Morgan Stanley, JP-Morgan Chase and State Street. This is very peculiar as the banks giving the New York Fed advice as how to solve the 2008 financial crisis were the same banks that were receiving aid from the Fed itself. Coincidence? I think not. While technically nothing illegal went down between these banks and the Fed, the whole situation begs to question the "cozy" arrangement the Fed and the 12 most powerful banking institutions of the United States have with each other. The GAO (Government Accountability Office) cautioned against a possible conflict of interests between the Fed's relationship with these banks and their duty to regulate them and make sure economic stability does not arise. Mctague suggests that the GAO broadens its audit investigations of the Fed so a conflict of interests does not arise again in the immediate future.
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It is not too surprising for the New York Fed to ask ceo's of companies in specific areas of expertise for advice, like GE and the commercial paper market. This type of problem is not limited to the New York Fed however. The FDA has a similar problem. It needs to employ top scientists in specific fields, however these highly educated scientists are scare and therefore the FDA must share them with the companies they are supposed to regulate. It seems like an overhaul in all government regulatory bodies with respect to policies about avoiding conflicts of interest is needed. Maybe such an action would increase the public's confidence and subsequently spur the economy a little.
ReplyDeleteWhile the validity of the Occupy Wall Street movement is somewhat questionable sometimes, these "cozy" arrangements no doubt help to spur the movement forward. The movement can prove to be counterproductive in respect to the economic recovery, as more press coverage produces less and less confidence not only in the economy, but also the individuals who are supposed to control its recovery.
ReplyDeleteIt can be a good thing to ask suggestions and recommendations from the CEOS from various banks since they are specialist in certain area. The FED don't have to do as they recommend. Its good to cooperate with each other.
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