Richard Clarida, the vice president of the United States Federal Reserve, has informed President Joe Biden this Monday in a letter that he will leave his post this Friday, January 14. The official has brought forward his departure from the central bank by two weeks in the midst of a crisis over alleged violations of the code of ethics. The management of the right-hand man of the Fed president, Jerome Powell, has raised suspicions of having benefited from a series of operations carried out in February 2020, when the institution was preparing a series of economic measures to deal with the coronavirus crisis. Clarida defends her time at the Fed and denies having lacked ethics in these transactions.
The controversy marks the decline of the management of Clarida, 64, who arrived at the central bank in September 2018 and whose four-year term expired on January 31. There is a date that casts a shadow over his period: February 24, 2020. That day Clarida sold between one and five million dollars (the formats made public by the official only handled ranges and not exact figures) in shares of a fund investment. The official repurchased that same package of shares in three operations days later, on February 27, despite the fact that the markets lived hours of uncertainty and nervousness due to the blow of the pandemic. The buyback was made hours before Clarida’s boss and friend Powell announced in a statement that the central bank was closely monitoring the development of the economy and was ready to act if necessary. Two weeks later, the institution launched an ambitious package of measures to slow down the virus’ blow to the markets.
The operation caused a great scandal. Especially since it was learned that Powell and Clarida had a phone call at 4:45 p.m. on February 27. It is not known for sure, however, if the two men discussed the February 28 announcement in their conversation, which would become the smoking gun against Clarida. This Monday, Democratic Senator Elizabeth Warren celebrated the hasty departure of the vice president, who arrived at the central bank proposed by Donald Trump. “I am glad that he resigned after public outrage caused by his lack of ethics,” wrote on Twitter the legislator, who has requested an investigation from the SEC, the body in charge of overseeing the US market.
Critics of Clarida speculate if Clarida acted because of insider information. Last january 6 The New York Times revealed that the vice president initially concealed that he had sold the package of shares he bought on February 27. When the case became known in May 2021, the Fed defended the official through a spokesman. He assured that the operation of that day had been planned in advance and that it would be used to balance the investment portfolio. “These transactions were executed before he became involved in the deliberations of the Federal Reserve of the emergency actions for the coronavirus,” the spokesman told Bloomberg, who added that the purchase was approved by the ethics officer of the bank’s board. There were no official explanations afterwards, when it was revealed that only three days passed between the share sale and the buyback.
In October, Clarida made reference to the case, without mentioning it. In a virtual conference, he said that he had always acted “honorably” and with the “integrity” required by public service. This Monday he also omitted to refer to the operations scandal in his letter to President Biden. In the text, he limited himself to defending the actions that the institution took to face the challenge posed by the blow of the pandemic to the world economy. In late November, the White House nominated Lael Brainard, a Powell advisor, to serve as the bank’s vice president. The advisor must be endorsed this Thursday by a Senate commission.
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The still vice president is not the only one who is under suspicion of having benefited from information. The Fed suffered casualties at the end of last year that are being investigated by the institution’s federal inspector for alleged violations of the code of ethics. Among these is that of Robert Kaplan, the president of the central bank’s office in Dallas, Texas, who made several individual stock trades and resigned last October after the press made the trades public, held in 2020. One month The same happened earlier with Boston President Eric Rosengren, who made real estate investments the same year. He resigned citing health problems.
This type of conduct has meant a reputational crisis for the central bank, which last October unveiled a series of measures aimed at preventing the personal benefit of its officials. These new rules limit the assets they can buy, mainly mutual funds, and require monetary policy makers to announce 45 days in advance their intention to purchase stocks or bonds. They also restrict transactions at times of great market effervescence. These new lines meant a new adjustment to an entity that does not like regulation. The last code of conduct of the central bank dated back to 1994.
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George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.