By Dan Ferris in the S&A Digest:

... I also told you on Tuesday how famous investors like Bruce Berkowitz and John Paulson were taking advantage of the government's heavy-handed regulation and backstopping of the financial system.

Well, Berkowitz and Paulson are late to the party. They've got nothing on Amy Friend, the chief counsel to Senate Banking Committee Chairman Christopher Dodd. At the height of the crisis, when the government was making plans to bail out AIG and other large financial institutions, Friend bought $1,000 to $15,000 stakes in Morgan Stanley, Wells Fargo, AIG, Fannie Mae, Freddie Mac, Federal Home Loan Bank bonds, and Fannie Mae debt.

Friend bought FHLB and Fannie Mae debt in June and July 2008, just days before President Bush signed a bill that gave the government housing finance agencies big cash injections from the Treasury. Friend is still in the game today, helping to draft Dodd's sweeping overhaul of the financial regulatory system.

If you or I did what Friend is doing, we'd wind up like Martha Stewart. But for her, Senate rules say it's perfectly legal. No SEC investigation. No insider trading violation.

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