More than 600 pages of disclosure documents were released last week after Bloomberg News filed a Freedom of Information Act request.
The most troubling revelation concerned Atlanta Fed President Dennis Lockhart.
Two weeks prior to the Federal Reserve's November 2010 decision to go ahead with the second phase of its quantitative easing program (QE2), Lockhart invested $289,000 in several stock index funds.
The $600 billion of government bond-buying that followed helped push the Standard & Poor's 500 index up about 15% over the next six months.
Lockhart also holds numerous major stocks, including Apple Inc. (Nasdaq: AAPL), Boeing Co. (NYSE: BA), Coca-Cola Co. (NYSE: KO), Exxon Mobil Corp. (NYSE: XOM) and Oracle Corp. (Nasdaq: ORCL).
However, Lockhart's moves didn't t actually violate any rules. Fed presidents are only restricted from trading for the seven days that precede a Federal Reserve policymaking meeting.
Losing Confidence in the Federal ReserveStill, such appearances of impropriety "undermine confidence in the system," said Money Morning Capital Waves Strategist Shah Gilani, Editor of the Wall Street Insights & Indictments newsletter. "People think, "What's the point? The system is rigged against me.'"
Given the Fed's mandate to control inflation, the investments of Dallas Fed president Richard Fisher also raised a few eyebrows.
These investments are widely considered to be hedges against inflation which is a direct conflict since many also consider the Federal Reserve's easy money policies to be inflationary.
Fisher also owns stock in dozens of companies.
While not suggesting new restrictions on the investing habits of Federal Reserve presidents, Gilani does think full transparency would help restore the public's flagging confidence in the Fed.
"When they buy and sell should be publicly disclosed immediately, within a few days of the transaction, not months later," Gilani said. "Why not do it?"
More Conflicts at the FedThe Federal Reserve had already attracted attention for a different sort of conflict of interest.
Last fall the Government Accountability Office (GAO) warned of concerns from having high-ranking executives from private banks serve on the boards of the Federal Reserve's regional banks.
Those private banks, of course, are regulated by the Fed and can get emergency funding from it.
The structure dates back to the 1913 origins of the Federal Reserve, but has come under more scrutiny since the massive bailouts of the financial sector in 2008.
"It's a very bizarre structure that arose as a political compromise a long time ago," Kevin Hassett, director of economic policy studies at the American Enterprise Institute and a former Fed economist told Bloomberg News. "There's this sort of shadowy world where our financial regulators are connected with Wall Street. It's really important that the New York Fed not be viewed as a captive of Wall Street."
The GAO investigation also showed that New York Fed president William Dudley owned shares of American International Group (NYSE: AIG) and General Electric Company (NYSE: GE) during the financial crisis. Both of those companies got help from the Fed.
Dudley, who reported his holdings to the Fed and eventually divested them, said last fall that Federal Reserve officials have recognized the problem. How much of it will get fixed - and when -- is another question.
"We have to take appearance of conflict really seriously because it does affect the institution by creating questions about our credibility," Dudley told Bloomberg News.
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