[Congressional Record Volume 155, Number 71 (Monday, May 11, 2009)]
[Senate]
[Pages S5312-S5313]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         NEW YORK FED CHAIRMAN

  Mr. SESSIONS. Mr. President, I wish to briefly discuss an issue that 
I think is important and at one time would probably have been worthy of 
front-page news articles around the country. Instead, I notice it is 
just another piece of news in the middle of a paper.
  Last Thursday, Mr. Stephen Friedman announced his resignation, 
effective immediately, as Chairman of the Federal Reserve Bank of New 
York, considered a central reserve bank in the country, the one that 
now-Secretary Geithner used to serve as president. As Chairman, Mr. 
Friedman stepped down only after a Wall Street Journal story questioned 
his ties to Goldman Sachs, a banking institution, at the same time he 
was serving on the New York Fed's board. Unfortunately, his bad 
judgment is just another example in a long line of examples 
demonstrating the tangled web we have woven in allowing so prominent a 
government role in private businesses, involving hundreds of billions 
of dollars.
  Let me read what the Wall Street Journal reported last Monday, May 4:

       The Federal Reserve Bank of New York shaped Washington's 
     response to the financial crisis late last year, which buoyed 
     Goldman Sachs . . . and other Wall Street firms. Goldman 
     received speedy approval to become a bank holding company in 
     September [of last year] and a $10 billion capital injection 
     soon after. That is a $10 billion capital injection after 
     they redefined themselves as a bank holding company. Prior 
     to that they were not eligible.

  It goes on to say:

       During that time, the New York Fed's chairman, Stephen 
     Friedman, sat on Goldman's board and had a large holding in 
     Goldman's 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 2\1/2\ 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.

  This is a troubling matter. Members of the Senate cannot even allow a 
lobbyist to buy our lunch. Yet this man can be on a board and can buy 
stock while he is asking for approval to do something he wants to do--
and they eventually gave him that approval--and he continues to buy 
stock and it goes up in value $1.7 million.
  According to the article:

       [Mr. Friedman] says he checked with a Goldman lawyer to 
     make sure there was no timing issue with such a purchase. He 
     says he didn't check with the Fed. New York Fed lawyers say 
     they didn't learn about his share purchase until the Journal 
     raised questions about them in April. . . . [The day after 
     receiving a waiver,] Mr. Friedman purchased 15,300 more 
     Goldman shares. . . . That million-dollar purchase brought 
     his holdings to 98,600 shares, according to the filings.

  I find this unacceptable behavior. There is a reason the Federal 
Reserve has a policy prohibiting a chairman of any regional Fed bank 
from having any connections with regulated financial institutions. You 
do not want the regulator to have a personal financial interest in 
those being regulated.
  I appreciate Mr. Friedman doing the right thing now and resigning. 
That is a good thing. However, too many officials have been acting in a 
way that suggests an erosion of propriety and the proper separation of 
interest.
  Recently, we learned from the New York attorney general that 
Government officials may have threatened Bank of America CEO Ken Lewis 
to continue a merger with Merrill Lynch or lose his job. After he 
figured out it was going to be very bad for his stockholders and 
indicated he was not going through with it, they told him they would 
fire him if he didn't go through with it.
  Some of the stories are unclear about how that all happened, but the 
issue does remain, and I will be interested to see what more we learn 
about this troubling matter when the House Committee on Oversight and 
Government Reform holds a hearing with Mr. Lewis and top Government 
officials, who will testify under oath.
  Since last year, when then-Secretary Paulson told us we must act or 
the economy would go into collapse--and we heard those dire warnings 
repeatedly--we have seen more and more of these instances of 
impropriety and lack of wisdom.
  Through TARP--the $700 billion bailout--a blank check with no 
accountability was given to the Government to do basically as it 
pleased. The money was given to the Secretary of the Treasury, and he 
met in private with many of these banks. Many of them were people he 
knew and were friends and buddies with, and he started allocating this 
$700 billion. It has continued now under Mr. Geithner, a man who 
previously was president of the Federal Reserve Bank of New York.
  Last month, Neil Barofsky, the special inspector general overseeing 
this $700 billion bailout, issued a report stating he has opened 20 
criminal investigations and 6 audits into whether

[[Page S5313]]

tax dollars are being misused or wasted.
  I think we have entered a time in American history where the line 
between Government and free enterprise has become muddled more than 
ever. During good times and bad--but particularly during times such as 
today--the American system of capitalism and free enterprise should not 
be manipulated for the benefit of insiders. We expect the people who 
are setting policy to be independent and above that kind of action.
  I will note that the reports concerning how the AIG bailout was 
handled remain unchallenged. This is what the report is indicating: 
that Mr. Paulson, who was Secretary of the Treasury and who had been 
the CEO of Goldman Sachs, was in and out of a meeting--a very important 
meeting--involving the insurance company AIG. Also, in that meeting, as 
I recall, was Mr. Kashkari, Mr. Paulson's assistant, who was also from 
Goldman Sachs. But who else was in that meeting? The chairman of the 
board of Goldman Sachs--the current, immediate chairman at that time--
and they were talking about an insurance company, AIG, and they decided 
to pump $80 billion into that company. Now we have pumped in $170 
billion. Of course, we now know that of the money that went to AIG, $20 
billion went to Goldman Sachs.
  So these are the kinds of things that are causing me great 
difficulty. I am a lawyer. I know how things are supposed to work. When 
you ask for money, you raise your hand under oath. People ought to be 
asking you questions. If you are in bankruptcy, you have to be cross-
examined by lawyers. The judge gets to ask questions. You have to 
submit certified financial statements before you get money. We cannot 
just allow a handful of people to meet in secret, decide we are in an 
emergency, and pass out hundreds of billions of dollars without the 
kind of accountability that I think is necessary.
  I will say to my colleagues in the Senate, that when we passed the 
TARP bill, I opposed it, and I said it was far too much a grant of 
power to one man--the Secretary of the Treasury--to allocate money that 
Congress should be appropriating. I raised that point, and it was one 
of my top objections. I believe history has shown the language in that 
bill was even more broad than we thought. Because, originally, we were 
told the money would be used to buy toxic mortgages from banks that 
were in trouble. That is what Mr. Paulson told us. That is what 
everybody thought they were voting on--except the language was much 
broader than that, if anybody took the time to read it.
  As soon as he got the money, within a week or so, he had decided not 
to buy toxic assets but to buy stock in the banks. He bought stock in 
the banks. Then, pretty soon, he was buying stock in an insurance 
company--AIG--pumping half the money into one insurance company, and 
$40 billion of the money that went into AIG went to foreign banks to 
pay the claims those banks had against AIG, as it did with other banks. 
We, the taxpayers, became the guarantor of an insurance company's 
responsibilities, which was never discussed with the Senate, the House 
or the American people. They just did it.
  The amount of money they committed was tremendous--I believe $170 
billion; whereas, the Federal highway budget for the whole United 
States is just $40 billion, and the education budget for the United 
States, the Federal Government, is $100 billion.
  I don't like this process. I am seeing too many stories such as this 
one involving Mr. Friedman, and it is time for Congress to get serious 
about it. I hope the Obama administration will stand and be counted. 
Mr. Friedman came in, I believe, under the Bush administration, so I am 
not being partisan. But it is time for the Obama administration to take 
a stand too. Mr. Geithner was in the middle of most of this; he helped 
write the proposal and was, what many called, the brains behind the 
Paulson proposal--the $700 billion bailout.
  This is a continuing problem in both administrations. It is time for 
Congress to reassert its constitutional responsibility to monitor the 
purse and to not allow money to be distributed in these kinds of sums 
without direct approval of the people through their elected 
representatives.
  I thank the Chair, I yield the floor, and I suggest the absence of a 
quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. DODD. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

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