In a classic Wall Street temper tantrum, Stephen Friedman stepped down from his role as Chairman of the Federal Reserve Bank of New York’s board of directors after a Wall Street Journal article called into question his ownership of stock in Goldman Sachs.
In his resignation letter Friedman states “Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper.”
So what is the story?
Friedman owned stock in Goldman Sachs (he was the former Chief over there) when everything melted down last year and when Goldman Sachs applied to become a bank holding company and for bailout money Friedman was one of the people who had influence or decision making power.
I am not saying that because of his ownership in the stock that he was or is guilty of anything, but the fact that he was a shareholder should immediately be cause for him to be removed from any decision making authority or influence he might have on the transaction. Instead, he kept his position as Chairman and added to his Goldman Sachs stock position in December 2008 and January 2009 (without disclosing to this to the Federal Reserve, which he wasn’t required to do).
His defense is that he complied with all the rules. He just doesn’t get it.
The right thing to do is not just to comply with rules, but to ensure the soundness of the decisions being made and to make sure those decisions are untainted by conflicts. His ownership of the stock should have prompted him to immediate resign. His resignation would not have caused concern and in fact his reputation would be intact as it would have been the right thing to do. Now he has cast a shadow on himself as he continued to buy up stock in an entity that he had regulatory influence over.
This is the problem with Wall Street, they don’t get that just because something is legal it doesn’t mean its ethical. Owning the stock may not have changed his decisions, but the taint is there and whether or not he made decisions based on sound judgement doesn’t matter – he owned the stock, his decisions are tainted even if they were the right ones.
We deserve better than this from our leaders. The arguement is that Friedman was the ONLY one who could do the job…..so he was given a waiver….give me a break. The same logic was used to hire Timothy Geithner who clearly was not honest on his taxes – does anyone really believed things could have been any worse if perhaps someone other than Geithner was chosen as Treasury Secretary?
The article didn’t identify Friedman as a Republican or Democrat and it doesn’t matter – ethics are ethics and this guy breached them and should resign. He shouldn’t be throwing a tantrum and blaming the Wall Street Journal for exposing his stock issues – he should be thanking them for the transparency they’ve provided (okay, I realize how funny that sounds).
I don’t know if Friedman’s stock ownership in Goldman influenced his decisions and frankly don’t care, what bothers me is that he doesn’t get it that the conflict was big enough that he should have resigned out of ethical responsibility.
Scott Dauenhauer CFP, MSFP, AIF