More entertainment as a new Wall Street scandal brews

Newspapers and online news sites spend almost as much space reporting on financial scandals as they do on the crisis in the credit systems.

It looks like the circus is not over yet. The chairman of the New York Fed, Stephen Friedman, sat on the Goldman Sachs (GS) board at the same time the investment bank was approved to become a bank holding company and raised $10 billion. He did not have the policy-making power of the president of the agency.

According toThe Wall Street Journal, "The case illustrates what a tangle of overlapping interests can arise at a hybrid institution like the New York Federal Reserve Bank, especially as the U.S. government, in addressing the financial and economic turmoil, grows ever more deeply enmeshed in American business and banking."

Well, maybe so. But the rules should be relatively simple. If an executive at a private company has any important relationship with a government agency, there should not be be any business relationship between the two. If there is, the private sector executive should step down.

Part of the trouble that emerged from the collapse of the financial system was that taxpayers watched as the former CEO of Goldman Sachs became the Secretary of the Treasury and the man he brought in to run the TARP was a former Goldman executive as well. Are Goldman Sachs alumni the only people qualified for all of these jobs? Certainly not.

But these conflicts of interest will keep popping up if the government allows the circumstances that make them possible to continue to exist.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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