Stephen Friedman’s welcome resignation

By Felix Salmon
May 7, 2009

As Kate Kelly prepares to launch her new book, she can add another scalp to that of Jimmy Cayne: Stephen Friedman, the chairman of the New York Fed, has resigned in the wake of her front-page article on Monday. His resignation letter is unapologetic (“although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper”) — but if he really felt sure about that, it seems unlikely he would have timed his resignation to coincide exactly with the release of the stress-test results, thereby ensuring the absolute minimum amount of coverage.

The New York Fed is a peculiar institution: it’s highly profitable, and dividends substantially all of its profits to Treasury, yet is technically owned not by the government but by some of America’s largest banks. Governance there is always going to be tricky. But right now is not the time to cut corners on that front, and grant waivers, especially when Friedman was actively buying Goldman stock during his tenure as chairman of Goldman’s most assiduous regulator. He should never have done that, and it’s good that he has resigned.

Update: Eliot Spitzer has a great column this week on the way the New York Fed is run, which is well worth reading. Friedman might have been a particularly egregious case, but there’s a deeper, more endemic problem at 33 Liberty Street.


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“… yet is technically owned not by the government but by some of America‚Äôs largest banks”
The banks don’t have much of a choice, it is mandatory for them to subscribe to the nyfed capital.

“But right now is not the time to cut corners on that front, and grant waivers…”

So you think the Chairman of the New York Fed should have resigned on the Monday following Lehman Week — effectively at the height of the biggest financial crisis in 75 years — in order to avoid some tisk-tisk articles from journalists about the appearance of a minor conflict of interest?

Yeah, I’m gonna go out on a limb and say that that was EXACTLY the right time to grant a waiver. Seriously, if that wasn’t the right to grant a waiver, then there isn’t a right time.