[Congressional Record Volume 155, Number 114 (Monday, July 27, 2009)]
[House]
[Pages H8812-H8813]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          THE NEW YORK FED: A HOPELESSLY CONFLICTED REGULATOR

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Florida (Mr. Stearns) for 5 minutes.
  Mr. STEARNS. Madam Speaker, I rise today to address the increasingly 
troublesome issue of conflicts of interest within our financial 
regulatory system and the potential long-term harm this could render on 
American taxpayers.
  To be specific, conflicts of interest abound at the Federal Reserve 
Bank of New York, the entity that has been at the forefront of our 
Federal Government's efforts to respond to the worst financial crisis 
our country has faced in decades. The New York Fed is, of course, 
intimately intertwined with the Federal Reserve and the Treasury 
Department, too, but Americans may be surprised to hear how close this 
entity is to major Wall Street financial firms as well. In fact, MIT 
economist Simon Johnson was recently quoted as saying, ``The New York 
Fed sticks out as being not just very, very close to Wall Street, but 
to the most powerful people on Wall Street.''
  In particular, the Federal Reserve Bank of New York is notably close 
to investment bank turned bank holding and receiver of billions of 
dollars in TARP funds, Goldman Sachs. The last two heads of the New 
York Fed, including Stephen Friedman, were former key employees of 
Goldman Sachs, and the current president of the New York Fed, William 
Dudley, was at Goldman Sachs for 20 years, including 10 years as chief 
economist. And of course, the New York Fed is now tasked with 
overseeing Goldman Sachs.
  Furthermore, former Treasury Secretary Henry Paulson, who engineered 
the $750 billion bailout of Wall Street and created the TARP program, 
was also the former CEO and chairman of Goldman Sachs. And in another 
non-coincidence, during his time as Treasury Secretary, Mr. Paulson 
managed to bail out insurance company AIG while letting Goldman Sachs' 
main competitor, Lehman Brothers, fail, thus ensuring AIG would be able 
to turn around and pay Goldman Sachs $12.9 billion in losses, making 
Goldman Sachs the largest recipient of public funds from AIG.
  Additionally, until December 2008, the chairman of the New York 
Federal Reserve, Stephen Friedman, was a former director of Goldman 
Sachs. Friedman actually resigned from his position as chairman earlier 
this year after a controversy erupted over his purchase of Goldman 
Sachs stock during his time in his position as the New York Fed 
chairman.
  And, in yet another conflict-of-interest scenario, let us not forget 
that Timothy Geithner, who was then president of the New York Fed, he 
decided to give $30 billion of taxpayers' funds to J.P. Morgan's 
acquisition of Bear Stearns, but Jamie Dimon of J.P. Morgan Chase was 
on the board of the New York Fed.
  Alarmingly, Madam Speaker, the Obama administration is now proposing 
we give more power to the Federal Reserve and, in turn, this same New 
York Federal Reserve. Let us first consider that the New York Fed is 
dominated by the banks it is supposedly regulating, and let us not 
forget these regulated banks hold the majority of seats on the New York 
Fed board.
  Former president of the Federal Reserve Bank of St. Louis, William 
Poole, he recently stated that employees at the New York Fed ``play a 
very valuable role, day in, day out, with detailed contacts with the 
big financial firms.''
  With such close proximity to large financial firms, how do we really 
know whose interest the New York Fed is putting first? Are the 
interests of Wall Street insiders taken into consideration before the 
interests of the American people? Are Wall Street's interests 
automatically equated with the interests of the American people?
  The New York Fed is part of a system Congress created in 1913 to 
avoid the concentration of too much power in New York or Washington 
alone. Yet, it seems today that all of the power at the New York Fed is 
concentrated within a few major Wall Street financial firms whose key 
employees now enjoy prominent positions within our Federal Government.
  The intimacy between the Fed and the firms they regulate should cause 
all of us to pause. It was, after all, the New York Fed that allowed 
companies like Goldman Sachs and J.P. Morgan to convert themselves to 
bank holding companies so that they could receive access to taxpayer-
funded, Henry Paulson-created TARP funds and then turn around just a 
few months later and post billions in record profits and dole out some 
of the highest bonuses in history.
  Madam Speaker, what is the sense in giving more powers to the 
regulator of the largest financial firms on Wall Street, the New York 
Fed, when their failed regulation of mortgage lending is what led to 
the accumulation of toxic assets in our financial system in the first 
place? Why on earth give more power to such a hopelessly conflicted 
regulator?

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