The Great Sphinx and the Mystery of the Federal Reserve

by J. Richard Finlay, for Finaly on Governance, January 11, 2010.

There is a legend that the Great Sphinx once promised a young prince in a dream that he would gain a kingdom if he would clear away the sand that had almost entirely covered over the watchful guardian’s stone body.   But the mystery of the Sphinx pales in comparison with its modern equivalent, the Federal Reserve System, which is enrobed in sands of obscuration and opaque practice that hide its true meaning and actions in the world.  This is an institution that rarely seems what it is and is seldom susceptible to being seen in its true light.

The most recent evidence in this regard came from a series of emails that show officials of the New York Federal Reserve tried to keep multi-billion dollar payments to Goldman Sachs and other huge banks, made through insurance giant AIG, secret.  The mystery deepens when it is recalled that Timothy Geithner, currently U.S. Treasury Secretary, was at the time president of the New York Fed.  We were among the first to raise the propriety of these payments nearly a year ago.

It is asserted by senior New York Fed officials that Mr. Geithner had no influence in the outcome, as he had removed himself from any decision-making.  Influence comes in a variety of shapes and sizes, however.  As its CEO, Mr. Geithner set the tone and culture for the New York Fed during his five-year tenure.  If he didn’t actually hire the staff  who made the decision about the payments to AIG et al., he was involved in assessing their performance.  They were his kind of people.  It is unlikely they would have done something they knew he would disapprove of or that would have been likely to cause him trouble in his new post.  That is not the way organizations work…(continue reading)

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