Transparency Needed

From Barrons Online: 
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No Way to Run a Central Bank

Two reports show that during the 2008 financial meltdown, regulators were taking advice from the regulated, who themselves were recipients of bailout largesse.

"When banking and investment wizards inadvertently blew up the financial system in 2008, the Federal Reserve Bank of New York required outside expertise on its triage team. And so it hired banking and investment wizards, including some who allegedly helped precipitate the devastating financial explosion, paying out $659.4 million across 103 contracts from 2008 through 2010. Among the hires were Goldman Sachs, Morgan Stanley, State Street and JPMorgan Chase -- all of which were recipients of the government's TARP, or Troubled Assets Relief Program funds. The 10 largest contracts awarded by the New York Fed represented 74% of the total amount. Eight of the largest contracts were awarded without competitive bidding.

Recipients of the 10 largest contracts were BlackRock (no bid); Morgan Stanley (no bid); Ernst & Young (no bid); Allianz's Pimco (no bid); law firm Davis Polk & Wardell (no bid); Wellington Management (no bid); State Street; JPMorgan (no bid); Goldman Sachs; and Morgan Stanley's EMC (no bid). Much of the contracted work was with American International Group, Bear Stearns, Citigroup and Bank of America; the no-bids were awarded to companies that were familiar with the innards of these troubled institutions. The New York Fed was lending the troubled institutions money and needed help to evaluate the value of the assets that they proffered as collateral....

By reading both audits head to footnote, I noticed things that apparently the GAO did not. Goldman Sachs and JPMorgan both got big contracts in 2008, when company officers were New York Fed directors. Without going into individual cases, the GAO makes a blanket statement that no directors had a say on any vendor contracts. Bully for that.

But from the outside looking in, the Fed looks sloppier than expected, no doubt owing to its insulation from oversight. A Dodd-Frank tweak, authorizing even broader GAO audits of the Federal Reserve System, might be the perfect pill."
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Link: http://online.barrons.com/article/SB50001424052748703927304576637292951198616.html?mod=BOL_twm_col