President of Richmond Fed Leaks Insider Information and Gets to Walk Free

Yves here. While this Real News Network interview with Bill Black makes clear how Richmond Fed president Jeffrey Lacker got away with conduct which would have earned mere mortals a big fine and maybe even jail time, I have a quibble with Black’s remarks. He states that regional Fed presidents are chosen by the banks that sit on regional Fed boards. That is no longer true as of Dodd Frank which became effective in 2011. The appointment is subject to the approval of the Board of Governors. More details about the process here.

SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

The Federal Reserve’s public image has taken a new hit with the resignation of a top official. On Tuesday, Jeffrey Lacker stepped down as head of the Federal Reserve Bank of Richmond. Lacker acknowledged discussing confidential, and potentially valuable, information with a financial analyst at Medley Global Advisors, and failing to tell investigators about it.

His disclosure resolves nearly a five-year investigation that’s been going on, where Lacker had been the longest-serving member of the Fed’s policy-making committee there.

We are joined by Bill Black to discuss this further. Bill is professor of both law and economics at the University of Missouri at Kansas City. He’s also a former financial regulator, and a white-collar criminologist.

Bill, good to have you back on The Real News.

BILL BLACK: Good to be back.

SHARMINI PERIES: Bill, tell us about the latest from the Federal Reserve Richmond, that I’m sure won’t surprise any of our viewers.

BILL BLACK: Well, we’re getting more insights into how the system is rigged. So, we’ve got institutionally, these Federal Reserve banks, these private entities, where the immense conflicts of interest are the order of the day. Serve this quasi-public function, supposedly, in setting monetary policy through something called the Federal Open Market Committee. And the decisions that that group makes are not made public ’til after they actually take the actions. So that people can’t make a fortune on insider tips.

But in this case, the FOMC, as it’s called, obviously the minute leaked. So, this case isn’t resolved. There are at least two leaks, and maybe more involved here. Lacker is only one of them, because if Lacker is telling the truth, and of course, “if,” should be emphasized, he was not the source of the original leak. The company that he discussed, which subsequently has been bought by the Financial Times, because, you know, integrity is everything, um…

SHARMINI PERIES: This is the Medley Global Advisors, which we’ll get to in a few minutes in terms…

BILL BLACK: …it’s Medley Global Advisors…

SHARMINI PERIES: …of explaining what their role is in all of this. But they at the time were supposedly financial advisors.

BILL BLACK: Well, this is a group that claims that its 1st Amendment press, it doesn’t have any press credentials, but it’s really, of course, a tout sheet, that says you should buy these things because we’re telling you this. So, it could… the actual information on what the Fed was going to do, is the type of thing that could literally make people billions of dollars, if it was leaked.

So, the first leak, if Lacker is telling the truth, and that person or persons is still not identified, was to this media group. Lacker then confirms the accuracy of the leak, which gives them confidence, of course, that they can make a ton of money, and their clients can make a ton of money off of this.

But there was also a leak to the Wall Street Journal around this time, that was less precise about what the Fed was going to do. But if it was accurate, again, would… we could say, it’s information that would move the markets. And information that moves the market is the kind of information you can make a lot of money on.

So, the Fed knew that there was at least one leak, and many more, because it was appearing in the Wall Street Journal, as well as in this tout sheet, this secret information. Remember, this is 2012, October 2012, so nearly five years this has gone on. And then they started an investigation with the Inspector General, and they apparently made a criminal referral because the Department of Justice began an investigation, although it’s possible that they did that because they read it, again, in the Wall Street Journal.

SHARMINI PERIES: And you must clarify, while this investigation is going on Lacker is still at the Federal Reserve.

BILL BLACK: Lacker is at the Federal Reserve, and for some years is actually sitting on the Federal Open Market Committee. And the Inspectors General, we know, come, and they talk to Lacker, and Lacker doesn’t tell them what he’s done. Which is to say… and by the way, the communication we have is not from Lacker directly, it’s from Lacker’s law firm… (laughs)

It’s a bad thing when you’re communicating for your law firm, A, it’s expensive and B, it means you got real concerns, and they’re not trusting you to say anything. So, they’re going to draft what you purportedly said.

The implication certainly is, he didn’t just fail to tell them, they were asking about it, and he deliberately mislead the FBI. And, you know, viewers will recall that some people have gone to prison for that. But, of course, we’re talking about an elite banker, and we don’t prosecute those kinds of folks. So, according to the lawyer’s press release for Mr. Lacker, he’s already been assured that there’ll be no prosecution, even though it was not…

SHARMINI PERIES: Is this another situation, Bill, where they get a plea, more or less, admitting guilt and then get off, so this has already been negotiated and therefore a done deal?

BILL BLACK: Yeah. But this is much better. No plea at all. Right? He doesn’t have to plead guilty to anything. He doesn’t have to agree to the facts, even, as to what he’s done. He doesn’t have to admit that he actually lied to the FBI, and to the Inspector General. Now, he says that when he talked to the FBI, he had thought better, and he acknowledged that he had talked to this group, and that they had the information.

But it appears -– again, this is a crafted by the lawyers’ type statement -– but it appears that he didn’t tell the FBI either that he had confirmed it. In fact, the thing the lawyers drafted doesn’t admit that he confirmed. It says, “I may have confirmed this secret information,” right? So, even at the very last, no, he’s not telling the truth.

But, you know, the broader point is, Lacker was allowed to stay, and was in fact reappointed in 2016, by the Board of the Richmond Fed, which is controlled by the big banks out there, for another five-year term, right? And even now, he’ll walk away clean, and while he was a president and voting these things. Let me read you, for example, what he said in a speech in mid-2007, just as the world economy was blowing up and the Fed, I remind you, and only the Fed could have stopped all the liars loans that were actually driving the crisis.

“Macroeconomic effects of recent developments in the sub-prime market, are likely to be relatively limited, and I do not expect any significant spillovers to the rest of the economy.”

Well, he goes on in this speech to say that, “The big thing we need to do is drive down inflation.” Which is 2%, and most economists think inflation is over-stated in the indices, so that 2% is probably closer to zero, according to many economists. But, by God, his emphasis was not the coming disaster, and sure as heck wasn’t clamping down on the banks, the elite bankers running the frauds. No. We had to drive down inflation to what would actually be negative, and dangerous levels.

So, in addition to being a pure sleaze, this is someone that has been wrong about everything important in economics for his entire life. And that’s why he was made president of the Federal Reserve Bank of Richmond, and that’s why he stayed president. And that was — it’s the most ultra-right wing of the 12 banks — and that’s a real statement, because, for example, historically, Minneapolis and St. Louis have been sort of, beyond Ayn Rand.

SHARMINI PERIES: Hmm. And, Bill, finally, is that the norm for the banks to actually appoint a president of the Reserve?

BILL BLACK: Yes, it has been the norm. And, indeed, it was normal for the largest banks to dominate it. And in a special twist, that you will love, they have a category of… there are three different categories of directors, or at least three different categories, and one of them is called “public interest directors.”

Where they frequently appoint CEOs of the largest banks… (laughs) …because, to the timing is perfect. Jamie Diamond, the head of J.P. Morgan, the largest bank in America, and depending on how you count financial derivatives, probably the largest bank in the world, has just done his Letter to Shareholders, in which he says, “Something is wrong with America.”

He is, of course, now an informal advisor to President Trump. And yes, Jamie, it is, and every time you look in the mirror, you see it.

SHARMINI PERIES: Gosh. You can’t make this stuff up, as they say. Well, we will look forward to your ongoing investigative eyes on what’s happening, not only at the Fed, elsewhere. Looking forward to hearing from you next week, Bill. Thank you.

BILL BLACK: Thank you.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.

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  1. fresno dan

    Justice is blind….but apparently her ears are so acute that she can distinguish a zinc penny from a gold doubloon jingling in the pockets of the defendants…

    1. perpetualWAR

      Justice isn’t blind. Our justice is collusive with the crooks. Just walk into any foreclosure court…..these judges know that the banks don’t have any claim to the collateral (the house) but they don’t care because the banks’ pay these justices so well to keep their mouths shut.

      Please everyone, stop claiming “rule of law” is being challenged. We became lawless long ago.

    2. ChrisAtRU

      Well, it’s oft said that when someone loses one sense, the others become more acute. So perhaps this is some dystopian “evolution” of “justice”.

  2. Sillyputta

    Two sets of rules. One for the one percent, the oligarchs, the decision makers. One for the rest of us. Gotta love the rule of law and democracy in America.

  3. flora

    “Remember, this is 2012, October 2012, so nearly five years this has gone on. ”

    I’m trying to remember who was President and who ran the DoJ over that time frame.

  4. Rich

    Bill Black: “Well, we’re getting more insights into how the system is rigged.” Bullshit, this isn’t some naive idiots personal journey of self-discovery. To describe it as such adds to the absurdity. Frankly, this smells more like Capitalists Americas version of history’s false description of old Soviet era show trials. From this perspective, how are the discussants unable to conclude that all these participants the FBI, the Justice Department, the OBAMA Administration, Lacker, Lacker’s legal team, the Federal Reserve, the Richmond Fed, are in bed together. Christ, y’all accurately conclude that NOTHING was done while for 5-years the illusion of activity was created by these staged actors.

    As far as Lacker’s lawyers communicating for him, slinging the bullshit and telling the lies, why hasn’t the FBI charged them with conspiracy to obstruct justice since they’re giving the false answers about “…maybe one or at least two leaks.” Hell, include the beneficiaries of the first leak, the Wall Street Journal, in the indictment. You can’t say the best of the best FBI and the best of the best Obama Justice Department attorneys didn’t have the balls, appetite, intellect, craft and ingenuity to go after the accused lawyers in the pursuit of prosecuting them as part of convoluted criminal conspiracies. Just ask Lynne Stewart and how these bastards will spare no effort to indict and convict any target when they desire it, even to go as far as connecting the indictment to actions nearly a decade in the future.

    1. perpetualWAR

      You assume that we are still under a nation of laws. Hint: we aren’t.
      And unless we, collectively, all decide to: 1) stop paying taxes; 2) stop voting; and 3) break all laws randomly, we continue to legitimize this $#it.

      Sorry. I just won’t legitimize it anymore.

    2. Yves Smith Post author

      You are missing the timetable. The system worked to a degree. Lacker didn’t expect to be outed and the Fed worked to prevent that. There’s no doubt in my mind the Fed enabled a coverup that was thwarted. I agree the punishment was insultingly light but Lacker was no doubt hoping he’d retire and get off with his reputation untarnished. My post has more detail.

      Congresscritters called for an investigation after the leak in 2012. The FBI was going to saddle up but the Fed said they’d have an internal investigation (query why the FBI was allowed to stand down initially). That produced nothing. Lacker clearly lied to whoever asked him questions then.

      Then IIRC in 2013 the CFTC started investigating and made a criminal referral to the DoJ, which it then too up. It was in the second round of investigation that Lacker apparently decided he better stop lying, no doubt in part because the Feds would or had pulled phone records and could/would see Lacker had talked to someone from Medley the day before.

  5. Teejay

    Some men are above the law. Some men are created equal. Justice has 20-20 eyesight. And now Lacker’s advising Trump. A Presidential Medal of Freedom must be right around the corner for Mr. Lacker. Laws are for little people. The vastness of the corruption in the administration of this society is breathtaking and profoundly demoralizing. But not to worry that there’s no end in sight; it’s straight ahead. Brace for impact. Brace for impact.

  6. nothing but the truth

    bankers are part of the establishment.

    till they don’t betray the establishment, it will take care of them.

    there is the establishment and the people.

    the job of the establishment, and of those who work for it, it to control and (mis) leas the people.

    Another major goal is to serve the chosen and protect Israel.

    Betraying the establishment is the crime.

    Betraying the people is what the establishment does. It is no big deal if a worker does it “in his personal capacity”.

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