Conflict of Interest is defined by Black's Law Dictionary as:

" A term used in connection with public officials and fiduciaries
and their relationships to matters of private interest or gain to
them. Ethical problems connected therewith are covered by
statutes in most jurisdictions and by federal statutes"

USC Title 18 Chapter 11, section 208 (note 1)

makes it a felony punishable up to 5 five years

for members of the Board of Directors of a Federal

Reserve Bank to make Bank decisions which benefit

their own interests. Attached is a Statement of the

role of Federal Reserve Bank Directors.(note 2)

It's apparent that such notables as J.P.Morgan's James

Dimon and Lehman's Richard Fuld, as directors of the

New York Federal Reserve Bank, will make decisions

which will benefit their companies and themselves.

Senator Christopher Dodd, in a radio broadcast of March

26, 2008 and noted in the New York Post,(note 3) stated

that James Dimon had a coflict of interest, given his

position on the NY FED Board of Directors and that

matter needs to be examined. But Dodd failed to

mention the conflict of interests at the April 4, 2008

Bear Stearns/J.P. Morgan bail-out Senate hearings.

Perhaps it was because Senator Dodd receives political

campaign contributions from none other than Morgan CEO

James Dimon and Lehman CEO Richard Fuld and the

alleged naked short seller Steven A. Cohen of SAC

Capital whose employees contributed a mere $344,000

for Dodd.


Mr. Richard Fuld:

The CEO of Lehman Brothers, was quoted by the Financial

Times of London of June 4, 2008, with having made the

following remarkable statement:

"The federal reserve's decision earlier this year to lend

directly to investment banks should take questions about

Lehman's liquidity off the table"

Let's analyse this statement a bit.

The "federal reserve's decision earlier this year to lend

directly to investment banks" is a reference to the

"primary" facilility extended to Bear Stearns of $25

billion, which turned out to be part of the loans in effect

made to J.P. Morgan of $55 billion. This is so because

Bear Stearns no longer exists and the loans are to J.P.

Morgan now, $29 billion of which is non-recourse.

Apparently the "federal reserve" has decided to now

lend directly to other investmant banks as the need

arises as a matter of policy.

The statement is revealing because Mr. Fuld does not

say that questions of Lehman's liquidity are off the table

because of the soundness of their present assets,

liabilities and cash. He says the liquidity questions are

"off the table" only because of Lehman's expections of

being treated at least as well as J.P.Morgan by the

New York Federal Reserve Bank when and if Lehman

demands bankers welfare (i.e. dole) payments from

the FED and ultimately from the tax payers.

In fact the statement suggests that questions of

liquidity are certainly "on the table" without the New York

FED bailout. Mr. Fuld suggests that if Lehman comes

calling for a $50 billion loan from the FED offering dubious

mortgages which Lehman values at $50 billion, he can

assure Lehman and the public that Lehman will get the

money because Lehman's illiquidity is off the table.

At the end of May, 2008, it was announced that Lehman,

Merrill Lynch, and other giant financial corporations had

their debt rating downgraded by Moody's, Standard and

Poors and Fitch similar to what was done by the rating

agencies to Bear Stearns, on March 14, 2008, the day of

the Bear Stearns crash. This downgrade made the cost

of insuring their debt issues double.

The statement by Fuld above is surely an attempt to quell

fears about Lehman's liquidity. This is similar to what Alan

Schwartz of Bear Stearns did when he told David Faber, two

days before the crash, that there was no liquidity crisis

because Bear Stearns had sufficient liquidity in its own right.

However, there are some important differences between Mr.

Fuld's statement and Mr. Schwartz's statement. Those are:

1. Fuld, like Jamie Dimon of J.P. Morgan, is on the Board of

Directors of the New York FED Bank which made the decision to

extend $55 Billion of loans to J.P. Morgan to buy Bear Stearns.

Bear Stearns CEO Schwartz was not on the NY FED Board.

In fact no one from Bear Stearns is on the Board.

This means that since Fuld, at last count, owns 1.9 million

shares of Lehman, 600,000 Restricted stock units and 900,000

executive stock options,(note 4) (see www.secform4.com), he

will not approve a loan to bail out Lehman other than directly

to Lehman itself. Lehman would not be treated like Bear

Stearns was treated.

Although, Mr. Fuld sold over $320,000,000 worth of stock at

near all time highs in 2006 and 2007, received through the

premature exercise of his employee stock options and

restricted stock vesting, he still has value in his present

holdings of approximately $100,000,000.

He surely would not approve a loan to a third party which buys

Lehman at bankruptsy prices which in effect wipes out his

$100,000,000 of equity.

Of course a $50-100 billion loan from the New York FED direct

to Lehman on a non- recourse basis as was the $ 29 billion

loan to J.P. Morgan, would make the stock of Lehman increase

and would eliminate the need for any borrowing or other

raising of capital.

Jamie Dimon:

2. James Dimon holds almost 3 million shares of J.P. Morgan

stock worth over $120 million with taxes already paid and

executive stock options equal in my estimate of another

$70 million. His dispositions of stock equalled $140 million

over the past few years.(note 5) (see www.secform4.com).

Jamie Dimon, like Richard Fuld, was at the luncheon on

March 11, 2008 with Bernanke, Rubin CEO of Citigroup,

Geithner, president of the New York FED, Thain of Merrill

Lynch, and Schwarzman of the Blackstone Group and others.

Some claim that the meeting was about Bear Stearns and

how to handle that situation.

Bernanke, Dimon, and Geithner all testified before the U.S.

Senate Committee on Banking April 4, that they first heard

of liquidity problems at Bear Stearns on the evening of

March 13, 2008.

If they were talking about the solution to Bear Stearns at

the March 11, 2008 luncheon, then their answers before

the Senate Banking Committe were less than truthful.

Perhaps a felony.

Alan Schwartz was not invited to the luncheon on

March 11, 2008. One wonders why.

3. Lehman Bros. is one of the original stock holders of the

New York Federal Reserve Bank, whereas Bear Stears does

not now have any ownership in the NY FED bank.

4. If Fuld approves a loan from the New York FED to Lehman

which he certainly indicated he would do, then he violates

Title 18 section 208. And it can not be any clearer.

Perhaps J.P.M. CEO James Dimon benefited by his decision as

a NY FED director on the Bear Stearns/ J.P. Morgan bail - out.

Did the stock of J.P. Morgan rise in the days just after

March 17, 2008. It surely did as the market perceived that J.P.

Morgan was a winner on the Bear Stearns deal.

John Olagues

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Footnotes:

1. Title 18 USC Chapter 11 section 206..... Federal criminal
statute on Bribery, Graft and Conflict of Interest.

2. Role of Federal Reserve Bank directors from the Federal
Reserve Bank of New York web site.

3. New York Post march 27, 2008. "Dodd Cites Dimon's NY
FED seat"

4. SEC Form 4 of Mr. Fuld indicating his stock sales and
stock awards granted

5. SEC Form 4 of Mr. Dimon includes stock, options and
restricted stock transactions made by officers and directors.

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