It is important to understand that the narrative of this financial crisis period is not being properly written. It is being colored either by insufficient information on the part of writers and analysts, or it is being managed by those whose agendas conflict with telling the truth.
Let’s back these allegations up with some examples. Truth first! Has the behavior that occurred inside the Federal Reserve Bank of New York been fully revealed? There are hundreds of people working in the markets area of the NY Fed. What did they know and when did they know it? What did the leadership of the NY Fed know and when did they know it? Geithner specifically. And what about the directors? Fuld was on the NY Fed board. As Lehman CEO, is it conceivable that he didn’t know about repo 105? Does anyone believe that he didn’t know it would change his balance sheet? Can we accept that the CEO didn’t know that he had a UK legal opinion because a US firm wouldn’t give one? If he did know, was he in a conflict position while sitting on the board of the agency that was his potential savior and with whom he had primary dealer status? When Lehman had a $3bn repo rejected by another Fed primary dealer because it was worthless, did the Fed catch it? If yes, what action was taken? If not, why not?
By the way, another primary-dealer CEO also sat on the NY Fed board at the same time. What was his obligation as a Fed director? What was his duty when he saw a $3bn piece deemed worthless by his own people? Once they rejected Lehman and protected their firm, was their obligation over? Maybe yes if the CEO didn’t sit on the board of the NY Fed. But he did sit there, and therefore he wore two hats. The NY Fed continues to stink up the joint by trying to avoid transparency unless and until it is forced to do so. Bloomberg News sued the Fed for disclosure and finally succeeded after a judge found in favor of journalism.
The New York Fed now has listed the CUSIP numbers of the assets in the limited partnership created during the Bear Stearns Affair. Maiden Lane number 1 is now public. This pile of junk even includes short positions in AMBAC and MBIA debt instruments. Check the NY Fed website for details. Query: is a short position in AMBAC the proper use of a section 13/3 emergency loan of the central bank, authorized by the Fed’s Board of Governors and implemented by the NY Fed?
Remember that it is an accident of history which places the NY Fed in a unique position among the twelve regional Fed banks because it houses the Fed’s portfolio. The NY Fed president is also in a unique position in the Fed’s policy decision-making structure. He is a permanent voting member of the FOMC unlike his eleven other regional bank presidents who have to rotate their voting status.
In this writer’s view the behaviors at the NY Fed during Geithner’s reign were appalling and need full Congressional examination. The nest needs to be opened and any infestation of rats needs to be exhumed. Repo 105 and the special year-long examination of Lehman offer the first clues. And think about it: these revelations came about because a bankruptcy judge ordered it. They were not found by the Fed; they were not dereived from any criminal investigation. Where was the oversight of the NY Fed? Where were/are the legal arms of criminal investigation? And how much of this will be discussed and debated and placed into consideration BEFORE some new legislation commits this country to a financial regulatory system that we will have to live with until the next crisis?
