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When Money Can be Created Indiscriminately, Laws Will be Indiscriminately Applied: The Steve Friedman Affair


In the last two blog posts, today's fiat money system has been discussed.  In a fiat money system, money has no intrinsic value.  In other words, the money itself is worth nothing.  Money only has value because a powerful government insists that the money has value, and that this money - which the government alone can issue - must be used in all transactions.  Of course, in a fiat money system a government, by virtue of its ability to create money out of thin air, acquires a tremendous amount of power.  Indeed, a quote attributed to the Rothschild banking dynasty tellingly declares, 'give me control of a nation's currency and I care not who makes its laws.'

Last week's blog post (1) discussed how today's fiat money system fuels an enormous concentration of wealth and power.  This week's  blog post will discuss how the enormous concentration of political and financial power in the US today - which completely relies on today's fiat money system - produces an arbitrary and capricious system of justice.  This arbitrary and capricious system of justice is demonstrated by how the financial powers that be looked into the 'Steve Friedman affair.'

During the financial crisis, Steven Friedman was the chair of the NY Fed's board of directors.  Friedman had also been CEO of Goldman Sachs and the NY Fed has a major role in regulating the large Wall Street banks like Goldman Sachs.  For Friedman then to have a role on the NY Fed is an obvious conflict of interest.  However, the NY Fed does not look at such things as the average person does.  Indeed, when Bill Dudley - the former chief economist at Goldman Sachs and Dunce #19 (2) - was selected as president of the NY Fed, the committee charged with selecting the president was led by Friedman - a former Goldman CEO!  What a racket!

However, the institutional cronyism between the NY Fed and the large Wall Street banks it is charged with regulating, doesn't even begin to touch on the Steve Friedman affair. Instead, the Steve Friedman affair involves insider trading - at least what anyone outside of Wall Street would consider insider trading - and the failure of anyone in a position of power to look into it.  Recall from last week's blog post that Tim Geithner, Dunce #24, secretly negotiated the terms of the AIG  bailout.  These terms were finalized in November 2008 and Geithner literally directed tens of billions of dollars - which the Federal Reserve had to create out of thin air - to be sent to AIG's credit default swap counterparties.  Among these counterparties was Goldman Sachs, and Goldman was to receive $14-billion from the bailout of AIG. 

Geithner may be milquetoast personified, but he is not completely stupid.  He must have recognized how outrageous the terms he offered to AIG's counterparites were.  He - along with the entire Fed - went to great lengths to keep the negotiations and the terms of the AIG bailout secret. It would be many months before the public had any idea what Wall Street banks were included in the AIG bailout and how much they were paid. 

Steve Friedman is a lawyer by education; after attending Cornell as an undergraduate, he graduated from Columbia Law School.  As a lawyer - a securities lawyer in particular - Friedman shouldn't have needed any instruction on what constituted insider trading.  Insider trading is essentially buying - or selling - a stock on the basis of information not available to the public.  The terms of the AIG bailout would not become public knowledge until March 2009.  Long before this - and after the AIG bailout was secretly negotiated - Steve Friedman made some rather sizeable investments in Goldman stock.

  • December 2008, Friedman purchased 37,300 shares at a price of 80.78 ($3-million)
  • January 2009, Friedman purchased 15,300 shares at a price of $66.61 ($1-million)

Even before the insider trading aspects of Friedman's Goldman stock purchases are discussed, they don't even pass a simple 'smell test.'  Friedman served in a senior role on the NY Fed, and the NY Fed was responsible for regulating and supervising Wall Street banks like Goldman.  Moreover, Friedman was the ex-CEO of Goldman.  Either one of these factors should have prevented Friedman from trading Goldman shares while working for the NY Fed.  However, in addition to these clear red flags, there was also the insider trading aspect of these trades.  Specifically, the notion Friedman would have been aware of the secret terms of the AIG bailout, and the $14-billion that this bailout would send to Goldman!  Could there be a clearer example of insider trading, or at least something that demanded some sort of investigation? 

I hope no one was holding their breath for an answer, because the NY Fed itself was completely non-plussed by Friedman's Goldman stock purchases.  Friedman's Goldman trades became public knowledge on May 4, 2009 after the Wall Street Journal ran a brief article on the topic.  Friedman resigned from the NY Fed on May 7.   As part of the NY Fed's announcement of Friedman's resignation, the general counsel of the NY Fed, Thomas Baxter, Dunce #2, said, quite remarkably,  "...and with respect to Steve's purchases of Goldman shares in December of 2008 and January 2009, which have the object of some attention lately, it is my view that these purchases did not violate any Federal Reserve statute, rule or policy."

Thomas Baxter's opinion was apparently enough to carry the day.  Friedman's purchases of Goldman Sachs - which were completely inappropriate while serving in the NY Fed and reeked of insider trading - were not investigated by any law enforcement agency.  In May 2009, just a few months after they had been purchased, Friedman's shares of Goldman stock had increased in value by around $3-million; or what a median income family will earn in 60 years.  The fact that Friedman's Goldman trades were not looked into at all is a complete travesty and miscarriage of justice.  (The government, including future FBI director James Comey, went to great lengths to prosecute Martha Stewart over her sale of Imclone stock when less than $50,000 was at stake in this trade!)  The simple fact of the matter is that when a government is strong enough to enforce a fiat money system, a system of justice that is unevenly applied is a natural consequence.  The Steve Friedman affair proves it. 


Peter Schmidt
Sugar Land, TX 77478
March 25, 2019

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