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Congress lately has been looking at Obama administration’s decision to increase the powers of Fed as a financial regulator. Before it gives a clean chit to Fed, the Congress should examine the links between Fed and Goldman Sachs.

It is a well known fact that most of the Fed presidents have former executive at Goldman. The involvement of Fed in allowing Goldman to get a bank status last year was also questioned by media but never followed up. Goldman has had the status for about 9 months but still does not have a single retail banking branch open. Fed took less than 24 hrs to grant the status to Goldman but never cared if Goldman is following the guidelines required by any bank. It enabled Goldman to have access to around $10 billion in TARP funds and $ 5 billion in TALF funds. It has still not gone out of the TALF program and is talking about giving record bonuses.

Many people would say at least the bank is making money especially seeing the second quarter earnings. That is true but where is the money coming from. It has been free money donated by government. All the securities that government wrote down for TARP and TALF funds were underwritten by Goldman Sachs. Hence Goldman got hefty amount of commission though tax payers money.

People would still say that the bank is at least working in favor of its investors. Is that true ? The government backed TARP money was available to Goldman at 5% interest rate. Warren Buffet gave Goldman the same amount of money $10 billion at 10% interest rates with much stricter conditions. A company truly working for the benefit of its shareholders would consider repaying the higher interest loan first. The only reason why they paid lower interest loan first. It had put a cap on the bonuses it can pay out to the top executives in the company. How is that fair?

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