The absence of any discussion concerning all the roles held by these important Wall Street figures, including in the governance of the Fed itself, does a disservice to the stakeholders who are entitled to all the facts.
It is widely held, even by Fed Chairman Ben S. Bernanke, that the Federal Reserve System helped to bail out Wall Street when it agreed to “loan” $29 billion to facilitate JPMorgan’s purchase of distressed investment bank Bear Stearns. We will have more on the subject of that so-called loan in an upcoming posting. What has gone unnoticed and uncommented upon by the press, analysts and members of the U.S. Senate banking committee during its hearing last week, however, is the fact that key Wall Street figures, including Jamie Dimon, chairman and CEO of JPMorgan Chase, Richard S. Fuld, Jr., chairman and CEO of Lehman Brothers and Jeffery R. Immelt, chairman and CEO of GE, are directors of the Federal Reserve Bank of New York, the institution that is putting up the money.
Mr. Dimon is a “Class A” director of the New York Fed, elected by member banks to represent member banks (i.e., Wall Street). Mr. Fuld and Mr. Immelt are elected by member banks to represent the public. One might take the view that foxes are generally elected to guard the henhouse, too. The New York Fed’s governance brings to mind the crony-stocked, self-serving boardroom of the New York Stock Exchange under Richard Grasso before it was forced to make major changes to ensure higher standards of independence and accountability. It is clearly time to look at to whom and how the New York Federal Reserve is held accountable.
We know that JPMorgan benefited handsomely from the Fed’s dramatic measures. Lehman Brothers, widely rumored a few weeks ago as the next possible Bear Stearns, got a boost from the Fed’s market soothing actions. And GE, who just today jolted the market by announcing a 5.8 per cent decline in first quarter net income, was also having problems with its financial services division. Mr. Immelt told CNBC (a unit of GE) that he began to be aware in March of a weakening company outlook. (In an interview earlier that month, he indicated the company was still on target to meet its previous positive guidance.) A less volatile capital market temperament was no doubt helpful to him as well.
More and more, the picture is emerging that this was a bailout of Wall Street, prompted by Wall Street, over problems caused by Wall Street, with terms dictated by Wall Street. The Fed’s agreement constitutes the single most significant market intervention in generations. Such a decision, which places substantial taxpayer dollars on the line and the concept of moral hazard in jeopardy, should be arrived at in a manner that is beyond reproach not only in fact but also in appearance.
The absence of any discussion by the media, the Federal Reserve or legislators concerning all the roles held by these important Wall Street figures, including in the governance of the Fed itself, does a disservice to the stakeholders who are entitled to all the facts in order to properly hold government and its agencies to account. It is our call for the Outrage of the Week.
When NBC News decided to publish self-taken videos, audio and photos of a deranged mass murderer earlier this week, it abandoned its own proud history, and that of its corporate owner GE, and descended into the gutter of the worst form of tabloid exploitation. The scale of the crime at Virginia Tech was horrific beyond comprehension. It confirmed that for all the billions put into homeland security, the wars in Iraq and Afghanistan, the intrusiveness of the Patriot Act and the constant preoccupation of its government with terrorism, America could not defend itself against the folly of its own gun laws that would permit a non-citizen with a history of mental illness to buy powerful automatic weapons with large magazines that shoot hollow point bullets. The purchase of the hand guns, magazines and ammunition by Cho Seung-Hui was apparently lawful under both U.S. laws and those of the state of Virginia. And with those two weapons, the deadliest shooting spree in U.S. history took place.
I am generally a vocal defender of the media and the rights of a free press. Too often, of late, they have been under siege, especially by the Bush Administration. Some actions, however, are not defensible. NBC crossed the line and with its actions. It unleashed a second assault by the madman of Virginia Tech when it placed the face of evil forever throughout the internet and on You Tube, where it is downloaded tens of thousands of times each hour by impressionable young people, and permitted the most vile videos and photos of a hateful and twisted individual to be splashed across newspapers, magazines and televisions around the world. It was done at the urging of a killer seeking some sickened form of immortality in place of a normal life. NBC gave him the heightened world platform he craved. In doing so, it sunk to a new low in its profession. A few media outlets, notably the Canadian Broadcasting Corporation, chose not to air these images out of concern for the damage they might cause and the lack of taste such display would bespeak. They deserve high marks for their decision.
The high calling of journalism brought to an art by the likes of Edward R. Murrow, Fred Friendly, Walter Cronkite and Peter Jennings knows that it cannot detach its news gathering function from its obligations to respect decency, to exercise sound judgment or to act with a sense of proportion. Those qualities were absent in the high councils of NBC News this week. Only the voice of high ratings and bigger profits was heard. There was not even the slightest indication that anyone at NBC considered that it might be appropriate to at least hold off airing these images until after the memorial services at the campus and a suitable interval for recovery of the still injured students and the families of the victims had elapsed. No, NBC had to make sure these images were put right in the face of the public and the grief-stricken families even before the killer’s victims had been buried.
From time to time, capitalism shows its ugly side. It did so this week with the NBC logo on it. It is a long fall for a respected news institution —an icon with three tones that has shaped the news and entertainment habits of generations and where one of America’s most valued and historic enterprises —General Electric— is the corporate owner. Yet in a week where directors of another network —CBS— were making loud noises of disapproval over the racial slurs of Don Imus, not a peep of disgust is heard from the directors of NBC or GE over this act of grotesque indecency. This would not have occurred, I suspect, under the leadership of Owen Young or Reginald Jones, two admirable leading figures from GE’s past.
But under the current generation of senior managers and directors, there is but one cardinal rule: maximize ratings and profits —apparently without thought to the larger costs. As a society, we expect our premier journalistic institutions to act in a manner that is consistent with the enormous trust we place in them. As investors and consumers, we expect the boards of such institutions to be the ultimate guardians of the professional integrity and good reputation that is necessary to their functioning. That trust was ill-served this week, which is why the actions of NBC news, along with the network’s board and that of its corporate parent,GE, which permitted this disturbing act of journalistic misjudgment, is the Outrage of the Week.