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Trading Rules Help Wall Street Pick Fed's Pocket

Transparency concerns let banks pick Bernanke's pocket

By Jason Farago,  Newser Staff

Posted Aug 3, 2009 4:27 AM CDT

(Newser) – Banks across Wall Street have made hefty profits trading with the Federal Reserve—often their only customer as the financial crisis ground trading to a halt—and government officials and finance execs are now asking whether Ben Bernanke is making tough enough deals. The central bank, unlike individual or corporate buyers, announces its upcoming purchases publicly, and banks inflate their prices accordingly, one former Fed official tells the Financial Times.

It's unclear how much profit the stricken banks reaped from the Fed, although the CEO of money manager BlackRock described the take as "luxurious." While that has angered some in Washington, others recognize the Street's profits as a necessary price for keeping the financial sector alive. "We don’t want the Fed to drive the hardest possible bargain," said Barney Frank, who chairs the House Financial Services Committee. "But we don’t want them to get ripped off."

Federal Reserve Chairman Ben Bernanke delivers a report on the country's economic and financial health before the House Financial Services Committee on Capitol Hill in Washington.
Federal Reserve Chairman Ben Bernanke delivers a report on the country's economic and financial health before the House Financial Services Committee on Capitol Hill in Washington.   (AP Photo/J. Scott Applewhite)
Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington last week.
Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington last week.   (AP Photo/J. Scott Applewhite)
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You can make big money trading with the government. The government is a huge buyer and seller and Wall Street has all the pricing power. - An executive at a leading investment management firm

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COMMENTS
Showing 3 of 3 comments
Netstorm2k10
Aug 3, 2009 12:36 PM CDT
Sigh. The corrupt flow of money exposed, and everyone thinks it's normal and right.
Spudsy
Aug 3, 2009 7:00 AM CDT
No one on Wall Street should get extra money for fixing the problems they were paid handsomely to create. You are teaching them to create problems.
BlueAyez
Aug 3, 2009 4:02 AM CDT
Everyone except those of us getting screwed out of our life's savings.

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