After working for a few years as a lawyer, Friedman had a long career with Goldman Sachs - including several years as chairman. The incongruity of a lawyer like Friedman running an investment bank like Goldman Sachs is not the issue here. Instead, the issue is how someone with a law degree and experience as a securities lawyer could engage in the obvious conflict of interest that Friedman did. In November 2007, Friedman - while still chairman of the NY Fed’s board of directors - apparently became aware of Tim Geithner’s (#24) then secret decision to bailout all of AIG’s derivative trading partners. This decision resulted in a $14-billion windfall for Goldman Sachs – exactly the sort of thing that would move Goldman’s stock price when it became public information. In December, Steve Friedman purchased 37,300 shares of Goldman stock at a price of $80.78. In January 2009 he purchased another 15,300 shares at a cost of $66.61. In just a few months, these 50,000 shares of stock would yield approximately $3-million dollars in trading profits. By almost anyone’s standard, these stock purchases and the enormous profits they produced were exclusively the result of inside information.
As a former CEO of Goldman Sachs and someone with decades of experience as a Wall Street lawyer, Steve Friedman had all the angles figured out. It was a foregone conclusion that, regardless of whatever he did Friedman, would always stay several steps ahead of the slow pace that justice travels up and down Wall Street. The lack of criminal proceedings against him notwithstanding, the example of Steve Friedman in late 2007 and early 2008 tells us much about how ethics in the traditional sense have no place whatsoever in what passes for “business as usual” on Wall Street. The fact that an experienced securities lawyer like Friedman would engage in these trades, and the failure of the Federal Reserve Bank of NY to do anything about them, is strong evidence that what transpires on Wall Street has almost nothing to do with free market capitalism or even simple, common decency. Instead, Friedman’s actions, and their tacit approval by the Federal Reserve Bank of New York, have everything to with the system of crony capitalism or “crapitalism” that the unholy alliance of the financial services industry, politically connected insiders and the Federal Reserve have created in capitalism’s place.
Some evidence of how pervasive and widespread this system of cronyism has become in the United States is provided by the positions Friedman held outside of Wall Street. Friedman was chair of the Columbia University board of trustees and currently sits on the Council of Foreign Relations. It is said that a country, just like a fish, rots from the head down. The example provided here by Steve Friedman as well as that of Robert Rubin (#41), another politically connected insider and former Goldman Sachs chairman, provides strong evidence of this maxim.
See Thomas Baxter (#2) for fecklessness from the NY Fed and Tim Geithner (#24) for more information on the AIG bailout. Robert Rubin (#41) provides another example of a financier with a checkered ethical and business past who is still feted as a conquering hero.