- Thomson Reuters
Since when do underlings get to chime in on whom their next boss should be?
That’s just what William Dudley, the president of the Federal Reserve Bank of New York, did in an interview with the Associated Press this week.
His fairly strong recommendation of Gary Cohn, President Donald Trump’s economic adviser and apparent favorite for the position, was especially egregious since Cohn used to be president at Goldman Sachs, where Dudley essentially spent most of his career as chief economist and partner.
The Fed chair is appointed by the US president. Dudley should stick to monetary policy and regulating big banks. As a matter of central-bank independence and integrity, he has no business opining on future candidates.
As Bloomberg’s veteran Fed watcher, Rich Miller, put it: “It’s rare for Fed officials like Dudley to comment publicly on such personnel matters because they usually want to avoid doing anything that might be seen as undermining the central bank’s political independence.”
Here’s the full exchange with the AP:
AP: On a personal level, Gary Cohn has been mentioned as potentially a Fed Chair if Yellen were not to be reappointed or declined. Did you work with Gary Cohn at Goldman Sachs? What is your impression of him as a potential Federal Reserve Chair?
DUDLEY: I don’t want to evaluate the various candidates for the Federal Reserve, except to say that I think Gary is a reasonable candidate. He knows a lot about financial markets. He knows lots about the financial system. I don’t think you have to have a Ph.D. in Economics, which I have, to be a chair of the Fed or governor or a president of one of the Federal Reserve banks. I think it’s important to have a committee that has diversity. That has different backgrounds and perspectives. So I think Gary’s a reasonable candidate.
AP: Any others you want to– ?
DUDLEY: No. (LAUGHTER)
AP: –names you’d mention – any– ?
DUDLEY: No, no thanks.
Not funny. Despite the clear conflict, he apparently sees nothing wrong with recommending Cohn while saying nothing to praise his current boss, Janet Yellen, who is also supposedly in the running for reappointment as Fed chair (but not really, it’s just another Trump reality-TV suspense stunt). Dudley then coyly declines to discuss other names being floated for the post.
Dudley has crossed a line, though it’s not a new one for his institution.
The New York Fed was home to one of the financial crisis’ most blatant conflicts of interest, and it’s all related to how Dudley was hired to head it in the first place.
This is what happened: Stephen Friedman was chairman of the New York Fed at the height of the crisis – but at the same time he was a member of Goldman Sachs’ board of directors. He also held a significant financial stake in the megabank, even as he was involved in the bank-bailout negotiations. Yes, really. (The New York Fed is supposed to play a pivotal role in regulating Wall Street.)
And here’s the kicker: The Fed’s board granted Friedman a waiver to buy Goldman stock just as prices had hit bottom and the central bank was stepping in to make all the banks, including Goldman, whole on their misguided bets on housing and related assets. Friedman was eventually pressured to step down, but that’s about it.
In his role as New York Fed board chair, Friedman got to pick its next president. Who did he run with? Bill Dudley.