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Fed Snubs Any Public Review In Making Goldman and Morgan Bank Holding Companies

Byline: Matthew Russell Lee of Inner City Press in DC: News Analysis

WASHINGTON DC, September 22 -- The Federal Reserve has become so lawless that its moves are hardly reported or questioned anymore. On Sunday night the Fed by press release announced that it had approved applications by Goldman Sachs and Morgan Stanley, all the better to shovel money to them. But to become a bank holding company is no small thing: it requires an application subject to public review, a public comment period, the ability to protest including on Community Reinvestment Act grounds.

  As it did in March when it allowed JPMorgan Chase to buy Bear Stearns without any public comment period (click here for Inner City Press' story at the time) the Fed simply did this. But its September 21 Goldman and Morgan press release does not even cite any statute or regulation under which it is waiving otherwise applicable law.

  Prior to the Gramm Leach Bliley Act which repealed the Depression-era Glass Steagall prohibition on mixing commercial and investment banking, the Fed could not have made Goldman or Morgan into bank holding companies. When the prohibition was repealed, it was said that applications would be considered on a case by case basis, with full public review. Now the Fed allows the biggest investment banks to step over the line, with no public comment.

Fed's Ben Bernanke: here take the money, laws to be thrown out

  The Fed is designing and promoting a $700 billion bailout, extended over the weekend to include non-U.S. financial institutions such as HSBC, Deutsche Bank, Barclays, Royal Bank of Scotland, Credit Suisse, Nomura and even Sovereign Wealth Funds.

  Likewise, the Fed simply says it is putting $85 billion into AIG, in exchange for a 79% equity stake. Such a stake, including by a foreign government, would require an application to approval, subject to public comment.  But the Fed has said nothing about that, nor about who will examine AIG's subprime lenders while they are controlled the government or Fed. Can you say, conflict of interest?

Separately, did the Fed discuss this with Henry Paulson, formerly the chief of Goldman Sachs? When will he finally start recusing himself?

Footnote: the only pro-public aspect of Sunday's announcement is that with Morgan Stanley being a BHC, if Wachovia or another buys it, they would unless waived have to apply to the Fed, subject to the CRA. Then again, the Fed has shown that the law means nothing to it.

Watch this site, and this debate, mostly about UN but also Sarah Palin.

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These reports are usually also available through Google News and on Lexis-Nexis.

Click here for a Reuters AlertNet piece by this correspondent about Uganda's Lord's Resistance Army. Click here for an earlier Reuters AlertNet piece about the Somali National Reconciliation Congress, and the UN's $200,000 contribution from an undefined trust fund.  Video Analysis here

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