Earlier this month, The Nation reported on questions being raised by the House Committee on Government and Oversight Reform regarding former New York Federal Reserve Bank Chair Stephen Friedman’s purchase of Goldman Sachs stock at a time when he was prohibited from even owning it.

The fact that Friedman nearly doubled his Goldman holdings in December 2008–while the public was still in the dark about which banks were benefiting from the AIG bailout and Goldman was the greatest domestic beneficiary to the tune of $13 billion in taxpayer money–not only led to his resignation from the Fed, it also put the incestuous and murky relationship between the Federal Reserve and Wall Street on full display.

Now Committee Chairman Edolphus Towns and Congressman Stephen Lynch have taken the investigation a step further, asking Fed Chairman Ben Bernanke for “all documents related to Mr. Friedman’s purchase of Goldman stock” and the granting of a waiver that allowed him to simultaneously serve on the Goldman and New York Fed boards.

“At a time when Mr. Friedman was prohibited from owning Goldman Sachs stock, he bought over a million dollars more of it without notifying the Federal Reserve,” said Chairman Towns. “This raises serious questions about transparency, fairness and the appearance of a cozy relationship between Wall Street and the government.”

“Normally, regulators are not allowed to personally invest in companies that they are regulating,” said Congressman Lynch. “This arrangement at the Federal Reserve raises major conflict-of-interest concerns. In addition, our committee will need to determine if Mr. Friedman capitalized personally and financially, at the expense of the taxpayer, based on information he obtained as a member of the Federal Reserve Board of Governors.”

Hopefully the Committee is also looking at what information Friedman might have capitalized on from his role on the Goldman board too, since an attorney for Friedman confirmed to The Nation that Goldman board members were briefed regularly in late 2007 and early 2008 regarding how much money AIG owed Goldman.

The letter to Bernanke also indicates that Towns and Lynch are interested in looking beyond the case of Friedman. They have asked for copies of all waiver requests–over the past ten years–by regional fed bank board members in connection with ownership or purchase of stocks, and the decisions that were made on those waivers. (There are actually a lot of good questions laid out in the letter–you can check it out in its entirety here.)

Kudos to Towns and Lynch for staying on top of this. In this casino economy where the rules seem rigged so the house always wins, their oversight offers the potential for a measure of accountability.