There is no substitute for a culture of integrity in organizations. Compliance alone with the law is not enough. History shows that those who make a practice of skating close to the edge always wind up going over the line. A higher bar of ethics performance is necessary. That bar needs to be set and monitored in the boardroom.  ~J. Richard Finlay writing in The Globe and Mail.

Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability.  ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.

The Finlay Centre for Corporate & Public Governance is the longest continuously cited voice on modern governance standards. Our work over the course of four decades helped to build the new paradigm of ethics and accountability by which many corporations and public institutions are judged today.

The Finlay Centre was founded by J. Richard Finlay, one of the world’s most prescient voices for sound boardroom practices, sanity in CEO pay and the ethical responsibilities of trusted leaders. He coined the term stakeholder capitalism in the 1980s.

We pioneered the attributes of environmental responsibility, social purposefulness and successful governance decades before the arrival of ESG. Today we are trying to rebuild the trust that many dubious ESG practices have shattered. 


We were the first to predict seismic boardroom flashpoints and downfalls and played key roles in regulatory milestones and reforms.

We’re working to advance the agenda of the new boardroom and public institution of today: diversity at the table; ethics that shine through a culture of integrity; the next chapter in stakeholder capitalism; and leadership that stands as an unrelenting champion for all stakeholders.

Our landmark work in creating what we called a culture of integrity and the ethical practices of trusted organizations has been praised, recognized and replicated around the world.


Our rich institutional memory, combined with a record of innovative thinking for tomorrow’s challenges, provide umatached resources to corporate and public sector players.

Trust is the asset that is unseen until it is shattered.  When crisis hits, we know a thing or two about how to rebuild trust— especially in turbulent times.

We’re still one of the world’s most recognized voices on CEO pay and the role of boards as compensation credibility gatekeepers. Somebody has to be.

Lessons from the Botched EU Bailout and other TARP Follies

Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, and leave the public to scrimp, sacrifice and struggle to pay more debt.

As we predicted, the stock-lifting EUporia over the European rescue plan that arrived last Monday morphed into market-pounding fear and skepticism by Friday. The Euro currency is pretty much in a shambles, too.  It looks like another huge bailout plan, like the initial incarnation of the TARP that was supposed to buy up billions in toxic assets, has been widely rejected as impractical and one that cannot possibly perform as intended. European leaders and central bankers have been left scratching their heads and wondering what hit them after they emerged from their Chamberlain moment, having pronounced their version of economic peace in our time.

The problems of Europe, and indeed, other nations that have too long been on a debt joy ride to fantasyland cannot be solved by either the profligacy of more debt accretion or the draconian paternalism of the IMF. When economies need to grow, you can’t tax them and shrink them into expansion, which is what they need to pay off their debt.  The formula devised for Greece, which will see paychecks decimated, pensions slashed and taxes hiked, can have only one outcome — and it is neither pleasant nor a track to the growth that is needed.  Nor can you push a country into greater debt for its salvation any more than you can make an addict recover by giving freer access to the source of the substance abuse.

TARP-type bailouts have become a flashpoint not just for the markets but also for the electorate.  On this Super Tuesday of U.S. primaries, look to see Washington insiders who have been connected to these massive bailouts take a big hit.  By tomorrow, one-time Pennsylvania Republican Senator, turned Democrat, Arlen Specter, will have lost his chance for a sixth term.  Rand Paul, who has become a darling of the Tea Party, the quintessential anti-bailout brigade, is likely to receive the Kentucky Republican nod for the Senate.  Democratic Senator Blanche Lincoln will probably lose her bid for renomination in Arkansas.   Last week, it was three-term Republican Senator Robert F. Bennett of Utah who was turfed out by his party. This is just the opening act for the main event that will come in November, when the full effects of what we have dubbed turbo populism will see some seismic shifts in the political landscape and in the culture of excess that has come to define it.

Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, while leaving the public to scrimp, sacrifice and struggle to pay more debt.  They know that approach is fundamentally corrupt and cannot be sustained either by precepts of ethics or principles of economics.   That is the lesson of the bailout backlash in Europe and the anti-TARP movement in America.

Those in positions of power who ignore it do so at their peril.

The Dodge Rahm

The recent flap involving the White House chief of staff is another sign that President Obama needs a Paul Volcker of the bipartisan world – – someone whose stature will command instant respect, who can act as a trusted counselor to the President.   It may be one of his last chances to avoid an even more costly episode of unintended acceleration into political disaster.

There is a universal law of organizations, especially political organizations, which some of us who have counseled them over the years have come to observe.  When the trusted advisor begins to attract the kind of press that puts the boss in a bad light, someone has a problem.  And it’s usually not the boss –unless he lets it.  The latest in a growing list of issues involving White House chief of staff Rahm Emanuel came to light in a column by Washington Post political reporter Dana Milbank,  who made the point that “Obama’s first year fell apart in large part because he didn’t follow his chief of staff’s advice on crucial matters.”

Since it is Mr. Emanuel who was supposed to be giving the advice, not many besides he would know whether it was taken or not.   In any event, this is not something that is going to assist a White House that is more and more looking like a victim of unintended acceleration into disaster, along with a Democratic Party that seems unable to steer away from calamity.  As both the real and symbolic head of the Democratic Party, Mr. Obama needs to think about the picture that is emerging:  The Senate loss in Massachusetts. The Governor’s scandal in Albany.  The demise of Ways and Means chairman Charles Rangel (D-15th NY).  The forced resignation of first-term representative Eric Massa (D-29th NY).   A slow motion train wreck involving health care reform also features prominently on the list.  Cap and trade seems almost buried and gone.  The President’s approval ratings have plunged.  The popularity of his party is foretelling of a November blowout.  Apart from spending trillions in bailout packages to deal with problems that were not of Mr. Obama’s making, there is pitifully little to show on the domestic side for the first year of his term.  On the foreign file, certain presidential trips, like the one to China, seem not to have been worth the cost of the fuel.   Of course, not every problem can be laid at the door of the Oval Office.  But issues, especially the ones that deal with tricky concepts of ethics and competency like those noted above, can quickly morph in the minds of voters, leaving the occupant of the White House often tarred with the blame.  This is especially true during a time of increasing anti-incumbency attitudes and mounting populist sentiment.

As White House chief of staff, a post which many contend is something akin to the role of an unelected prime minister, Mr. Emanuel is not exactly a remote bystander in all of this.  Our own views on the subject of his performance and probable early exit were set out late last year.  One gets the impression that the growing litany of failures and setbacks is prompting some rewriting of history or at least an unbecoming distancing from the decisions themselves.  The fact remains that no chief of staff in any administration worthy of respect would be caught with these kinds of comments connected to him.  He has not denied the thrust of Mr. Milbank’s column.  It’s another red flag that should not be ignored by a president who has already missed some important ones over the past year.

A positive step for Mr. Obama at this point would be to re-think the merits of the Chicago school he brought with him into the White House.  When other presidents have been faced with a loss of momentum, they have called upon respected senior adults to help with turning things around.  David Gergen comes to mind in that role for President Clinton.  Howard Baker was brought in to bring direction to the Reagan White House after the messy arms-for-hostages debacle.  Mr. Obama could use his own version of such a trusted advisor in the West Wing now.

What is needed is a Paul Volcker of the bipartisan political world — someone whose stature will command instant respect inside and outside the White House.  The purpose would not be to replace Mr. Emanuel, but it would be the kind of person who could take over that function if it became necessary.  With a little luck, he or she even might have developed an ability to restrain their predilection for profanities, bone-headed comments and flights of ego, all of which are becoming too closely tied to the staff of the Obama White House.

Coming into office, Mr. Obama wisely made much of his desire not to become tied to pre-scripted viewpoints or inside-the-beltway thinking.  He understood that advice from outside was an important tool for testing the accuracy of the political compass and maintaining a healthy perspective.   More of that thinking, both from Mr. Obama and from those who advise him, is needed now if an even more costly episode of unintended acceleration into political disaster is to be avoided.

The President has plenty of challenges and problems hitting him from outside.  He does not need them coming from the office next door.

Is the Senate Buying Another TARP in Ben Bernanke?

The Senate’s vote for the Fed’s Chairman will be viewed as a crucial test for who stands with Wall Street and who stands with Main Street.

After some slightly encouraging rumblings in the contrary direction, it appears that the Senate is poised to confirm Ben Bernanke to a second term as Chairman of the Federal Reserve.  Certain senators may be putting their jobs on the line when they do, however.

More and more, Main Street wants to know who stands with it.  Mr. Bernanke is not seen as one of those figures.  Having been part of the Greenspan-era bubble and then, even as Fed chairman himself, still blind to the dark clouds of financial crisis that were forming, his response was to shove an incomprehensible amount of money and support at Wall Street and the major banks.  But he failed to come clean on the Fed’s dealings with the financial institutions that have been taking advantage of these generous programs and, in fact, has aggressively moved to prevent transparency and public scrutiny of them in a landmark case involving Bloomberg News.

Mr. Bernanke’s role in the AIG bailout, and in permitting the secret (at the time) payment of billions to other banks, including Goldman Sachs, is still not fully explained. In the nearly two years since this crisis was apparent and more than 12 months since Lehman Brothers was allowed to collapse, the Fed under Mr. Bernanke has failed to conduct any meaningful internal review as to what went wrong, what signals were missed and what steps the Fed needs to take to address them.  At the very least, a vote on confirmation would seem premature until all the work by TARP’s inspector general, Neil Barofsky, is completed, including questions about AIG’s Fed-approved counterparty payments.

But Mr. Bernanke’s statement to legislators that he did as much as possible to prevent paying 100 cents on the dollar to Goldman is revealing on its face.  Can you imagine the legendary Arthur F. Burns, who ran the Fed under President John F. Kennedy, or William McChesney Martin Jr., who served under a record five presidents, ever being blown off by some bankers who did not want to cooperate at a time of national crisis?  Or is it a matter that Mr. Bernanke has grown so close to the big banks and their Wall Street cousins over the seven years he has been at the Fed that he just can’t say no to them?  There is a reason why Wall Street itself is voting overwhelmingly in support of Mr. Bernanke’s second term, and it’s not because it thinks he’ll be great for Main Street.

Mr. Bernanke is a little like the $700 billion TARP legislation which he co-authored (with then Treasury Secretary Henry Paulson) in the fall of 2008.  In a voice trembling with urgency, he told Congress that if it were not passed and implemented immediately, the entire economy would likely collapse.  But the TARP was never used for its intended purpose.  It did not address the main problems, as we predicted at the time.  No toxic assets were ever bought up with it.  It rattled many in Congress who thought they had been sold a bill of goods.  And more than a year later, a couple of hundred billion of it has not been spent and still many additional costly initiatives were required to get the economy moving.

Has the reconfirmation of Ben Bernanke itself become something of a TARP, where what is being sold is not quite what is needed and will not be used for the intended purpose?  Will the world really end if Mr. Bernanke is not reappointed?   Or is there more risk of the opposite happening because he will miss other disasters that are brewing, just as he missed the early signs of the current one.  Worse, will his cozy relationship with Wall Street end with a hideous price tag that drops like a rock at the doors of Main Street?  Already, trillions in liquidity have been unleashed and the Fed’s balance sheet – a key measure of its lending to the financial system – has ballooned into the record trillions.

A clean break from the past of tolerated bubbles, missed signals and overly generous policies directed at the players who caused the problems in the first place is what is needed.  Mr. Bernanke’s priorities, loyalties and convenient evasions have made him a poster boy for the discontent of Main Street and a part of what drives the forces of turbo populism.

Four years from now, Mr. Bernanke may very well be in office.  But will President Obama and the senators who vote for confirmation and against the perceived interests of Main Street?  It’s a role of the dice that should cause wise lawmakers to think twice.

It’s encouraging to hear that our earlier comparison between Fed Chairman Bernanke and Titanic Captain Smith was not lost on some senators.

Titanic Fed

Turbo Populism Arrives in Washington — and Anywhere Else it Wants

Wise leaders know that it is never sensible to underestimate either the forces of nature or the power of public outrage. Washington and Wall Street are about to receive an important lesson in history.

The winds of change can blow in both directions.  One year ago, they propelled Barack Obama into the White House on a current of support from every quarter of society. Today, the President finds himself pushing against mounting gales of outrage and discontent, leaving his popularity diminished and his agenda for reform in doubt.  This is his first, but likely not his last, major encounter with what we have dubbed turbo populism.  Fueled by the costs of two far-off wars, record deficits, unprecedented levels of CEO pay and historic rates of unemployment, what lies at the heart of this movement is a revolt over the power and perks of entrenched interests, whether they are found in Washington or on Wall Street.  By the time it ends, more than just Mr. Obama and a very unimpressive candidate who lost her party’s bid to retain the seat held by Massachusetts Democrat Edward M. Kennedy and before that, John F. Kennedy, will have experienced some very Rolaids days.

Abuses on Wall Street and excesses on the part of its key players which led to the worst financial crisis in generations are also featured actors on this stage of seething discontent.  The sight of bankers salivating over bigger bonuses has not gone over well among ordinary Americans, who continue to struggle with jobs losses, spiraling home foreclosures and a crushing national debt.  Mr. Obama’s stalwart support for Ben Bernanke as head of the Fed and Timothy Geithner as Treasury Secretary, both now facing major questions about their roles in the bank bailout and whether they are too close to Wall Street to serve the needs of Main Street, have placed the President in an awkward position for one who campaigned so vigorously on the promise of change.  Health care reform now seems to have been the victim of almost terminal mismanagement by the White House and by the Democratic leaders in Congress, who, in doling out deals to various senators in exchange for their votes, did exactly what Mr. Obama campaigned to change: the way Washington works.

Changing the way politics is done struck a populist chord on the campaign trail, where the forces of unease and the preponderant view that America was on the wrong track, gave momentum to Mr. Obama’s message.  But now, that same misdirected train has turned to face the White House and a political process that so many of its dissatisfied passengers still find intolerable.  What it seems many Americans, especially independent voting Americans, were banking on in Mr. Obama’s policies was that more hope would be focused on Main Street and less audacity would be displayed on Wall Street.

Over the past year, America and its admirers have witnessed the spectacle of business leaders who were paid hundreds of millions of dollars admitting that they did not see the coming storm clouds of their own creation.  But they still kept the hundreds of millions.  Men who were once trumpeted as financial titans and graced the covers of countless genuflecting magazines have been humbled in a way not seen since the 1930s.  Former Citigroup CEO Sandy Weill recently confessed that he always thought the company, whose stock continues to languish in a $3.50 shell of its nearly $50 glory, was “impregnable.”  He was apparently stunned by the extent of Citi’s meltdown.  “I felt that we should be able to weather that storm,” Mr. Weill recently told the New York Times.  No amount of miscalculation, however, prevented Mr. Weill from pulling in more than half a billion dollars in the late 1990s and early 2000s, or being appointed to the board of the New York Federal Reserve in 2001.  Icons like General Motors and Chrysler have become financial wards of the state.  Their descent to that status did not prevent those at the top from pulling in tens of millions in compensation, however.  On the tenth anniversary of what was then billed as the deal of the decade, the merger of AOL and Time Warner is now seen as the marriage from hell, costing tens of billions in shareholder value, lost earnings and vanished jobs.  Only last week,  three CEOs of leading Wall Street firms admitted to a Congressional inquiry that they were as surprised as anyone when the credit crisis struck in 2008.  The trio of Jamie Dimon (JPMorgan Chase), Lloyd Blankfein (Goldman Sachs) and John Mack (Morgan Stanley) were not compensated like anyone, however. Collectively, they were paid more than $300 million over the past five years.

Leaders often fail to heed the growing signs of change and disaffection when they are fond of basking in the reflection of their own egos instead of looking at where reality commonly resides.

The betrayal of elites, or at least the promise of their much-vaunted magic, both in business and in the political arena, the scale of the abuses and excesses of the few and the costs they inflicted on the many, the pervasiveness of leaders who place the claims of special interests over cries for public good – these are among the backdrafts and jet streams that have unleashed the winds of turbo populism.  And like the concept of stakeholder capitalism, a term we coined more than 20 years ago to mark the growing dissatisfaction of institutional investors and pension funds with the self-aggrandizement of management and the somnolent tendencies of boards, this latest wave of populist outrage will be coming soon to a boardroom near you.

Sometimes, change comes in battalions, as it did with the campus upheavals of the 1970s and the swelling protests demanding an end to the war in Vietnam.  Other times, it arrives clothed in the moral authority of a single man, as it did with Mahatma Gandhi and Rev. Martin Luther King Jr.  Occasionally, it will come in the form of a Tea Party or just one too many credit card holders fed up with paying interest rates of 30 percent when the bank is getting money courtesy of the Fed at zero percent.

Wise leaders, as history has shown, do not wait for a call from Western Union before they get the message the people are trying to send.  They know that it is never sensible to underestimate either the forces of nature or the power of public outrage.  Both have the occasional tendency to sweep aside pillars of man-made glory and monuments to entrenched interests as if they were mere castles of sand.

Welcome to the era of turbo populism.

Outrage of the Week: Super-paid CEOs Who Were Not Supermen After All

Never in the history of modern business leadership have CEOs been paid so much to achieve so little at such cost to so many.

At the opening hearing of the Financial Crisis Inquiry Commission held in Washington this week, key players in the worst financial meltdown since the Great Depression admitted they did not see it coming.  The chairmen and CEOs of JPMorgan Chase and Goldman Sachs, Jamie Dimon and Lloyd Blankfein, and the chairman of Morgan Stanley, John Mack (who used to be its CEO as well) all testified that they were surprised at what happened.  They now agree they were overly leveraged and did not handle risk with the respect it deserved.  Mr. Dimon apparently never contemplated the possibility that housing prices would stop rising, much less decline.

It seems that Messrs. Dimon, Blankfein and Mack had as much vision in anticipating the downturn, and the folly of some of their assumptions about growth, as over- extended buyers of subprime mortgages had.  Except that Dimon, Blankfein and Mack were not struggling low-income homebuyers who took on one too many bedrooms.  They were among the highest paid executives on the planet whose word commanded deference and awe among much of the investing public, the media and an ever-admiring circle of policymaker-groupies.

Over the five years leading up to the subprime debacle in 2008, these three men were collectively paid more than $310 million.  For the year 2006 alone, when so many of the seeds of disaster were being sewn on Wall Street and among its top banks, Mr. Dimon was paid $57 million and Mr. Blankfein $38 million.  When Mr. Mack rejoined Morgan Stanley in June 2005, he was awarded stock worth $26 million on day-one, and a further $13 million in compensation and benefits for his first five months of work.  In December of 2006, Mr. Mack was awarded a bonus of $40 million on top of his $1.4 million salary.

As they were being paid these sums, much of the world was increasingly convinced that these were proper incentives to ensure alignment with shareholder interests.  They earned every penny million, it was thought.   The prevailing view, especially among the wishful thinking and the non-thinking alike, was that such men were really superheroes whose ability was so unique and so far beyond those of ordinary mortals, the fact that their feet touched the ground when they walked was seen merely as one of their many generous concessions to convention.

They were not alone, of course.  There have been hundreds of CEOs who have happily participated in the greatest transfer of wealth of its kind –a transfer that, for all the soaring salaries, bonuses and stock options, has ultimately seen the worst economic crisis since the 1930s, the highest job losses in generations and a stock market performance over the past ten years that has produced virtually zero gains, except for the titans and bankers who managed to cash out before the fall.

The 21st century began with a series of corporate scandals involving companies like Enron, WorldCom, Tyco and Hollinger.  It ended its first decade in the throws of the worst financial failure in modern time.  One thing stands out to mark the beginning of this period and its end: the folly of executive compensation.  In 2002, we warned Congressional committees: “The most corrosive force in modern business today is excessive CEO compensation.  Such lofty sums tempt CEOs to take actions that artificially push up the price of the stock in ways that cannot be sustained, and to cash out before the inevitable fall.”  The extent of that corrosion and fall is apparent today.  The consequences in taxpayer dollars soar into the trillions.  The costs in human terms remain beyond calculation, as does the loss of confidence in corporate leadership.

More than just Lehman Brothers, a few banks and a couple of Detroit automakers went bankrupt in this period.  The trust of workers, the middle class and pensioners in corporate management and governance has also collapsed.  There may be a seismic ruin of jobs, dreams and foreclosed homes on Main Street.  But on Wall Street, where people like Mr. Dimon, Mr. Blankfein and Mr. Mack still command adulation for their leadership and vision, the Fed-supported, taxpayer-rescued towers of finance give hope and comfort to those still requiring generous bonuses to get through their Tiffany-challenged day.   The magnitude of their gains this year, less than 18 months from a once- in-a-lifetime experience looking into the abyss, promises also to set new records, which, like housing prices, is something Mr. Dimon thinks should go only one way, too. Recently, he announced that he was sick and tired of the criticism being leveled against Wall Street on the compensation front.

These are forceful accelerants to the rise of Turbo Populism, the term we coined on these pages and will be speaking more about in the future.

Had the world the benefit of a modern Churchill capable of battling the monstrosity of betrayal and failure these titans of excess have wrought, he would surely have given voice to a mood that is thundering across the land from kitchen tables and church pews to swelling unemployment lines and Twitter postings: Never in the history of modern business leadership have CEOs been paid so much to achieve so little at such cost to so many.

This is a reality that escaped the CEOs who appeared before the Congressional committee this week.  They do not escape our sense of outrage.

The Great Sphinx and the Mystery of the Federal Reserve

Giza_Plateau_-_Great_Sphinx_-_head_side_closeupThe latest flap over taxpayer payments to Goldman Sachs confirms the culture of secrecy upon which the Fed in Washington and its New York counterpart are dependent.   They like the dark, closed-curtain life that bankers prefer, where the sunlight of public scrutiny is seldom an invited guest.  It is a culture to which Mr. Geithner adapted well.

There is a legend that the Great Sphinx once promised a young prince in a dream that he would gain a kingdom if he would clear away the sand that had almost entirely covered over the watchful guardian’s stone body.   But the mystery of the Sphinx pales in comparison with its modern equivalent, the Federal Reserve System, which is enrobed in sands of obscuration and opaque practice that hide its true meaning and actions in the world.  This is an institution that rarely seems what it is and is seldom susceptible to being seen in its true light.

The most recent evidence in this regard came from a series of emails that show officials of the New York Federal Reserve tried to keep multi-billion dollar payments to Goldman Sachs and other huge banks, made through insurance giant AIG, secret.  The mystery deepens when it is recalled that Timothy Geithner, currently U.S. Treasury Secretary, was at the time president of the New York Fed.  We were among the first to raise the propriety of these payments nearly a year ago.

It is asserted by senior New York Fed officials that Mr. Geithner had no influence in the outcome, as he had removed himself from any decision-making.  Influence comes in a variety of shapes and sizes, however.  As its CEO, Mr. Geithner set the tone and culture for the New York Fed during his five-year tenure.  If he didn’t actually hire the staff  who made the decision about the payments to AIG et al., he was involved in assessing their performance.  They were his kind of people.  It is unlikely they would have done something they knew he would disapprove of or that would have been likely to cause him trouble in his new post.  That is not the way organizations work.

Then there is the issue of the Fed’s governance, which, as we have observed on numerous occasions before this latest revelation, resembles more a committee of the Society of Freemasons than an actual supervisory body.  On this board during Mr. Geithner’s reign sat such luminaries as Jamie Dimon, CEO of JPMorgan Chase and Richard Fuld, CEO of Lehman Brothers.  Jeff Immelt, head of giant GE, was also a director.  Mr. Geithner was hired by top Wall Street players to serve Wall Street’s interests.  From that point on, the success of banks and the satisfaction of those who ran them was the center of Mr. Geithner’s universe.  He showed no discernible concern throughout his entire term over the run-up leading to the housing/mortgage bubble, the rise of unprecedented  levels of risk and leverage, or the complexity of collateral debt obligations.  When problems arose and breakdowns began, when hedge funds were collapsing, and right up to or even beyond the fall of Bear Stearns, did Mr. Geithner launch an internal examination of possible failures in oversight and regulation?  Did he urge the directors of the New York Fed to review that organization’s governance practices?  The answer on both counts is NO.

Mr. Geithner’s role at the New York Fed in many respects is no mystery at all.  The mystery is why professional regulators actually think it is credible to assert that even though he was president of the New York Fed, he had no more role in a key decision to re-channel taxpayer funds ostensibly intended for AIG to Goldman Sachs and other counterparties than the man who operates the boiler in the Fed’s basement.

The riddle people need to be looking at is how it is that, as the new Treasury Secretary, Mr. Geithner was apparently shocked at the abuses and excesses that had occurred on Wall Street and in the banking industry, but as a major regulator of that sector, the same abuses and excesses were occurring on his watch, apparently without objection.

The contradictions and unanswered questions about Mr. Geithner and the New York Fed are, of course, part of the wider mystery, as we have noted, about what happens at the 20th Street Northwest, Washington headquarters of the Federal Reserve System.

Here, details about the collateral that is accepted by the Fed, which institutions are using various Fed-sponsored programs, and what really happened to the $29 billion in Bear Stearns so-called collateral, are kept under wraps.  The Fed is desperately attempting to fight an access request under the federal Freedom of Information Act made by Bloomberg News for details surrounding the central bank’s $2 trillion loan program it launched to bail out financial institutions in the wake of the Lehman Brothers collapse.  A court hearing on the matter was held today.

Last month, Fed chief Ben Bernanke bristled at Congressional proposals to have the Government Accountability Office audit monetary policy decisions, even half a year after they have been made.  Then there is the free money that the Fed has tossed at the banking sector, with a funds rate that is lower than at any time in U.S. history.  Add to that the fact that never before have so many trillions been committed or spent to bail out, prop up, guarantee and support the banking industry.

The culture of the Fed in Washington and its New York counterpart is one that thrives, indeed, is dependant upon, secrecy.  They like the dark, closed-curtain life that bankers prefer, where the sunlight of public scrutiny is seldom an invited guest.  The Fed draws many of its staff and members from that world, and when they leave it they often return to work for banks and financial institutions as consultants and advisors.  It is the coziest of clubs, and one that many of the players are anxious not be disturbed.

Whether the Fed and all the steps it has taken will withstand the gales of turbo populism outrage (our terms) remains to be seen.  If you believe the legend carved in stone  in front of the statue nearly four millennia ago, had Tuthmosis IV not cleared away the sands from the Great Sphinx, he would have lost a desert kingdom.  If the U.S. taxpayer and all those who depend upon American capitalism do not clear away the sands of secrecy and obfuscation that the Fed has come to represent, their losses will be even greater.