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
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)
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(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." (Read more Barney Frank stories.)