Is the Fed Handing Out Valuable Tips to Insiders?

Congressman Grayson Asks for an Investigation into Federal Reserve’s FOMC leak

The Federal Reserve’s Open Market Committee released its recent minutes 24 hours early to a handful of big banks, private equity firms and other insiders.

Congressman Alan Grayson wrote the following letter to the Chairman of the Committee on Oversight and Government Reform (Darryl Issa) today:

Good questions.

Nobel prize winning economist Joseph Stiglitz agrees, saying that the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy.

The non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest, and that insiders can get very rich by stay close to the Fed.

We noted last year:

Let’s start by looking at what information was revealed in response to the previous, watered-down version of Ron Paul’s  Fed audit bill:

• The Fed gave huge bailouts to foreign banks, including Gaddafi’s Libyan bank, the Arab Banking Corp. of Bahrain, and the Banks of Bavaria, Korea and Mexico

• The Fed bailed out hedge funds, McDonald’s and Harley-Davidson

• The Fed threw money at “several billionaires and tens of multi-millionaires”, including  Christy Mack, the wife of Morgan Stanley’s John Mack, billionaire businessman H. Wayne Huizenga, and Michael Dell, co-founder of Dell Computer, hedge fund manager John Paulson and private equity honcho J. Christopher Flowers ***

As Senator Sanders noted last October:

A new audit of the Federal Reserve released today detailed widespread conflicts of interest involving directors of its regional banks.

“The most powerful entity in the United States is riddled with conflicts of interest,” Sen. Bernie Sanders (I-Vt.) said after reviewing the Government Accountability Office report. The study required by a Sanders Amendment to last year’s Wall Street reform law examined Fed practices never before subjected to such independent, expert scrutiny.

The GAO detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves. “Clearly it is unacceptable for so few people to wield so much unchecked power,” Sanders said. “Not only do they run the banks, they run the institutions that regulate the banks.”

***

The corporate affiliations of Fed directors from such banking and industry giants as General Electric, JP Morgan Chase, and Lehman Brothers pose “reputational risks” to the Federal Reserve System, the report said. Giving the banking industry the power to both elect and serve as Fed directors creates “an appearance of a conflict of interest,” the report added.

The 108-page report found that at least 18 specific current and former Fed board members were affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis.

[T]here are no restrictions in Fed rules on directors communicating concerns about their respective banks to the staff of the Federal Reserve. It also said many directors own stock or work directly for banks that are supervised and regulated by the Federal Reserve. The rules, which the Fed has kept secret, let directors tied to banks participate in decisions involving how much interest to charge financial institutions and how much credit to provide healthy banks and institutions in “hazardous” condition. Even when situations arise that run afoul of Fed’s conflict rules and waivers are granted, the GAO said the waivers are kept hidden from the public.

(Indeed, the Fed routinely allows favored bankers to make billions of dollars from inside information.)